Starbucks growth 'clearly bucking the trend' in the restaurant industry: Analyst
Wedbush Securities Managing Director Nick Setyan joins Yahoo Finance Live to discuss Starbucks results and transaction growth amid high food inflation.
Video Transcript
RACHELLE AKUFFO: All right, well, shares of Starbucks trading higher after reporting those fourth quarter earnings. They're up almost 3%. Wedbush Securities Managing director Nick Setyan joins us to help break those numbers down. Good to have you back, Nick. Now we know you had a neutral rating on the stock on a price target of $92. What did you like in this earnings report?
NICK SETYAN: Well, the US comp is clearly on fire here, including positive transactions. So the company is able to pass on 10% in average check growth and still managed to get 1% positive transactions. That's clearly bucking the trend here in the restaurant industry.
And then, on top of that, despite the China woes, the rest of international, ex China, is doing better as well. So the rest of the markets, like Japan and South Korea, are actually carrying China along, right? I mean, so the consensus estimate for international, including China, was down 8, came in down around 6. So a beat on international as well, despite China headaches.
SEANA SMITH: Yeah, Nick, that's interesting here because, clearly, the results are very strong once you take out the weakness that we are seeing out of China. But as we enter the next couple of months, which, at least from now, it looks like it's going to be pretty choppy. We could see more of a significant slowdown here in the US where Starbucks clearly outperformed last quarter. What's your read on what we could see this current quarter and looking ahead into next year?
NICK SETYAN: Well, so I mean, I expect the guidance to be very positive relative to expectations. The question is, despite the guidance, what actual results will look like as the year progresses. In the near term, at least through the first half of their fiscal year, so the holiday season and on fiscal-- you know, Q1 ending in March, or calendar Q1 ending in March, I expect them to continue to have high single digit comps in the US, even with negative transactions. So I see very little risk to current expectations around FY23.
RACHELLE AKUFFO: And Nick, a lot of people sort of looking for some cues as to how the consumer is feeling about things. Doesn't seem to be the case, though for Starbucks. Even same store sales growth up 11%. People also spending more, higher foot traffic there. What do you think consumers are driven to Starbucks, whereas we're seeing some other retailers really struggling?
NICK SETYAN: Well, you know, an interesting thing is restaurants across the board have been doing very well this quarter. Not a single restaurant, with the exception of a couple of company specific cases, has missed so far, with about 85% of restaurants reporting. So every single restaurant-- practically every single restaurant has beaten expectations and has given very solid guidance, especially around the top line.
And that's being driven, number one, by extraordinary price increases, but even with those big price increases, the gap versus grocery is expanding. So grocery prices are seeing higher year over year growth rates than the restaurants, number one. So that's helping restaurants become a relative value, as ironic as that sounds.
And then, two, we're still benefiting-- restaurants are still benefiting from this. I don't want to stay home. I want to go out and enjoy experiences, as opposed to ordering goods online. And so restaurants continue to benefit from that tale as well.
SEANA SMITH: Nick, what about the price increases over the last 12 months? We've seen prices rise by about 5%. Do you think more in store?
NICK SETYAN: I think more are in store, but I do think that because grocery stores-- grocery prices are rising faster, restaurants are not in danger as much as first blush might indicate.
RACHELLE AKUFFO: All right, always good to have you on. Nick Setyan there. Thank you for joining us this afternoon.
