Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Tim Chang Published: July 29, 2023
Thoughts From the Model Developer: Based on the Fed and current market conditions/expectations, I believe interest rates will likely stay elevated and even increase in 2023, and remain elevated for the remainder of the year and likely through Q22024. Additionally, we are starting to see credit tightening, and if a recession does unfold, credit will likely become even more restricted. Lines impacted/direction: North America Segment, increase in opex with an increase in interest expense. “To reflect this opinion, I have increased the interest expense, row 145 on IS per store estimate by 15 basis points for remainder of 2023 and up to Q22024. After Q22024, I reverted back to the original management guidance and did not apply the additional 15bps” FY 2023 Guidance was 540-560M in interest expense. With my increase of 15bps, we are around ~605M in total interest expense for FY2023.
2023 saw a large shift in the market with a lot of companies forcing employees back into the office. Major tech companies, financial institutions, and other sectors have all started requiring employees back into the office. For example: FB, Google, most (if not all) Insurance, banking, and finance institutions. I think this trend is likely to continue for years to come. Lines impacted/direction: North America Segment, increase revenue “To reflect this opinion, I have increased my average revenue per store (row 44) for NA company-operated stores, NA licensed stores and not international segments as this is an opinion about North America business conditions estimate by 20 basis points each quarter of fiscal years 2023, 2024, 2025, and 2026, for the North America segment only” This puts us at the high end of high end of Global Revenue guidance.
Based on the sustained strength in sales growth given the inflationary environment, Starbucks has clearly demonstrated a differentiation strategy that gives it strong brand recognition and thus pricing power that their competitors may not have. Lines impacted/direction: North America Segment, increase revenue and decrease opex as a % of revenue “To reflect this opinion, I have increased my average revenue per store (row 77 on IS) estimate by 10 basis points each quarter of fiscal years 2023, 2024, 2025 for the international segment only (North America segment's increase of 20BPS above reflects this already”
Market Multiple Valuation Description: I chose to use the PE ratio as this is the industry standard for Starbucks. Starbucks consensus forward P/E = 28, the base case was a forward P/E = 30. I am largely in consensus with the base case but I added one point to the base case for a forward P/E = 31. My belief is that there will not be any economic slowdown and that the Fed will be able to achieve their "soft-landing" (Row 19, Impact of Economic Cycle). Therefore, instead of taking away a point from the multiple I made "no adjustment" thus increasing the total forward P/E=31.
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.