Club holding Starbucks (SBUX) reported strong fiscal fourth-quarter results after the closing bell Thursday, giving us confidence that demand can endure the softness in the global economy and China’s continued adherence to its zero-Covid policy. Revenue advanced to a quarterly record of $8.4 billion, exceeding expectations of $8.31 billion. Adjusted earnings-per-share came in at 81 cents, outpacing the 72-cent consensus. The stock rose more than 2% in after-hours trading as management reaffirmed their long-term guidance provided in September, which members will recall surprised the investors because of how strong it was. Bottom Line While China’s rolling Covid lockdowns and restrictions remain a headwind, management’s confidence in the long-term outlook for the region was unwavering, with the team commenting on the post-earnings call that their “aspirations for our business in China has never been greater.” The company opened its 6,000 th China location in September and continues to target 9,000 location in China by 2025. Taken as a whole, we see no change in our investment thesis. Management’s store reinvention plan is working and Starbucks is in a position to deliver strong topline results with enhanced profitability in fiscal year 2023, as China hopefully reopens more fully, currency headwinds abate, and investments in growth are harvested in the back half of the year. When asked on the call how management can be so confident in the face of so much uncertainty, they highlighted the company’s highly successful loyalty program, increased customization in drink orders that results in a higher ticket price, and the pricing power they’ve demonstrated over the past year. However, they did acknowledge that now is not the time raise prices further. One factor we found particularly intriguing was talk on the call about customer demographics. The team said their customers are skewing younger and that “young customer, that Gen Z customer, tends to have significantly more discretionary money at their disposal. And their loyalty to Starbucks has been quite significant and predictable.” Companywide Results Same store sales or comps, a key performance metric in retail that removes the effects of currency fluctuations and normalizes for store openings and closings, rose 7% globally in fiscal Q4, on the back of an 11% advance in the U.S. Estimates were for 4% global growth and 8% in the U.S. Internationally, excluding China, saw a double-digit percentage increase. However, international declined 5% when including China, but that was not as bad as estimates for a 7% decline. China sales dropped 16%. Starbucks ended the quarter with 763 net new stores — totaling 35,711 locations globally, 51% of which are company-operated with the remaining 49% as licensed locations. Breaking that down a step further, 61% of all Starbucks stores are in the U.S., with 15,878 locations, and China, with 6,021. Additionally, 90-day active membership of the U.S. Starbucks…
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