Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Mamadou Barry Published: July 29, 2023
Starbucks will continue to implement strategic price increases in order to combat macroeconomic headwinds. Inflation has now eased for 12 months straight; however, the likelihood of another rate hike is high given the current state of the job market and the fact that the Fed has remained committed to achieving its 2% inflation target. Despite the macroeconomic factors at play, the outlook for Starbucks remains favorable as the company has a premium value brand which allows them to raise prices without compromising consumer demand and profitability. To reflect my optimistic views, I have decreased product/distribution costs as a % of revenue by 1 percentage point and increased average revenue per company operated store by 30 basis points in North America for the remainder of FY23.
Customers will continue to order more premium cold beverages with increased customization in the short to medium term. Coffee drinkers are increasingly seeking out cold beverages and the coffee industry has responded to this change in consumer preferences by developing new innovative cold-brewing techniques to streamline operations. As it pertains to Starbucks, the company unveiled a proprietary drink-making system in the past year called the Siren System which was developed for the purpose of meeting the growing demand for customization of hot and cold beverages and warm foods. Cold drinks make up a large percentage of Starbuck’s sales and I believe that Starbucks will be able to utilize the Siren System to increase sales in the foreseeable future. To reflect this view, I have increased average revenue per average company operated store by 20 basis points and decreased store opex as a % of revenue by 2 percentage points.
I believe that labor organizations will be unsuccessful in their attempt to negotiate a union contract with Starbucks. Labor organizers have made a strong push for Starbuck’s U.S. workers to negotiate a union contract with the company, however, these efforts have proven to be counterproductive. Thousands of employees remain unconvinced of the union’s value and since the unionization of the Starbucks store in Buffalo, New York, the rush to unionize Starbucks stores has slowed. As of June 2023, employees have voted to unionize at 331 stores, representing roughly 4% of Starbucks 9,000 company-owned stores in North America and I believe that the labor unions will not be able to enter into a collective bargaining agreement with Starbucks. To reflect this view, I have left opex as a % of revenue unchanged through FY25.
Disclosure: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.