Insights

Starbucks Breaks a Promise

At first glance, the news Starbucks (NASDAQ: SBUX) gave its investors Tuesday evening didn’t sound so bad.
Reporting on earnings for its fiscal Q2 2022, the coffee restaurateur delivered quarterly sales of $7.6 billion, GAAP profits of $0.58 per share, and “non-GAAP” profits of $0.59 per share — just as analysts had predicted it would. Total sales climbed 15% year over year, while earnings were up only 4%. But that’s just what Wall Street was expecting Starbucks to report, so at least no one was disappointed.    
That is to say, no one was disappointed until Starbucks itself disappointed them.
Image source: Getty Images.

Commenting on how its numbers came out the way they did, Starbucks painted a picture of strong sales growth in the U.S., where same-store transactions grew about 5% year over year, and the amount of money customers spent at Starbucks (“ticket” size) grew 7% — resulting in total same-store sales growth of 12%.
Outside the U.S., the story was the opposite, with both the number of transactions and the amount of money spent per transaction falling, resulting in same-store sales declining by 8%. And the really bad news came from China, where lockdowns to slow the spread of the COVID-19 pandemic simply devastated Starbucks’ business. Indeed, 20% fewer Chinese people visited Starbucks in Q2 2022 than they had a year earlier, and those who did show up spent 4% less, resulting in a huge 23% decline in same-store sales in China.
Obviously, given the erosion of Starbucks’ Chinese business in Q1, combined with recent reports that the lockdowns in Shanghai (at least, and perhaps other cities as well) are starting to ease, investors were eager to hear what Starbucks had to say about how soon things might get back to normal in China. They wanted “guidance,” and Starbucks management promised to give it to them, writing in the 4 p.m. EDT press release, “The company will discuss fiscal year 2022 financial targets during its Q2 FY22 earnings conference call starting today at 2 p.m. Pacific Time.”
But here’s the thing: When 2 p.m. Pacific Time (that’s 5 p.m. EDT) rolled around, Starbucks actually did not give guidance. Rather, CEO Howard Schultz advised:

Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year. Given the materiality and the high level of ongoing uncertainty around China, accelerating inflation, and the significant investments we are planning, the only responsible course of action for us to take is to suspend guidance for Q3 and Q4.  

Granted, that makes total sense. According to data from S&P Global Market Intelligence, China accounts for more than $1 out of every $8 Starbucks makes. If Starbucks doesn’t know what’s going to happen in China, it can’t reasonably be expected to give reliable guidance on its business as a whole.
Still, it’s more than a little strange that Starbucks would promise guidance one moment, then change its mind just an hour later.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy. –

At first glance, the news Starbucks (NASDAQ: SBUX) gave its investors Tuesday evening didn’t sound so bad.

Reporting on earnings for its fiscal Q2 2022, the coffee restaurateur delivered quarterly sales of $7.6 billion, GAAP profits of $0.58 per share, and “non-GAAP” profits of $0.59 per share — just as analysts had predicted it would. Total sales climbed 15% year over year, while earnings were up only 4%. But that’s just what Wall Street was expecting Starbucks to report, so at least no one was disappointed.    

That is to say, no one was disappointed until Starbucks itself disappointed them.

Image source: Getty Images.

Commenting on how its numbers came out the way they did, Starbucks painted a picture of strong sales growth in the U.S., where same-store transactions grew about 5% year over year, and the amount of money customers spent at Starbucks (“ticket” size) grew 7% — resulting in total same-store sales growth of 12%.

Outside the U.S., the story was the opposite, with both the number of transactions and the amount of money spent per transaction falling, resulting in same-store sales declining by 8%. And the really bad news came from China, where lockdowns to slow the spread of the COVID-19 pandemic simply devastated Starbucks’ business. Indeed, 20% fewer Chinese people visited Starbucks in Q2 2022 than they had a year earlier, and those who did show up spent 4% less, resulting in a huge 23% decline in same-store sales in China.

Obviously, given the erosion of Starbucks’ Chinese business in Q1, combined with recent reports that the lockdowns in Shanghai (at least, and perhaps other cities as well) are starting to ease, investors were eager to hear what Starbucks had to say about how soon things might get back to normal in China. They wanted “guidance,” and Starbucks management promised to give it to them, writing in the 4 p.m. EDT press release, “The company will discuss fiscal year 2022 financial targets during its Q2 FY22 earnings conference call starting today at 2 p.m. Pacific Time.”

But here’s the thing: When 2 p.m. Pacific Time (that’s 5 p.m. EDT) rolled around, Starbucks actually did not give guidance. Rather, CEO Howard Schultz advised:

Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year. Given the materiality and the high level of ongoing uncertainty around China, accelerating inflation, and the significant investments we are planning, the only responsible course of action for us to take is to suspend guidance for Q3 and Q4.  

Granted, that makes total sense. According to data from S&P Global Market Intelligence, China accounts for more than $1 out of every $8 Starbucks makes. If Starbucks doesn’t know what’s going to happen in China, it can’t reasonably be expected to give reliable guidance on its business as a whole.

Still, it’s more than a little strange that Starbucks would promise guidance one moment, then change its mind just an hour later.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US & HK* Trades. Click Here!