Starbucks earnings in line as SBUX stock gets a caffeine boost

SBUX stock is at the time of writing up over 6% in Wednesday's premarket as investors take a positive outlook on SBUX earnings. Starbucks reported earnings pretty much in line after the close and the stock initially had a fairly subdued reaction. The conference call, though, pushed investors to reassess and add more SBUX stock with the resultant move higher.

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Starbucks (SBUX) stock news: Strong demand keeps growing

Starbucks earnings per share came in at $0.59, which matched Wall Street estimates. Revenue came in at $7.64 billion also more or less in line with estimates at $7.6 billion. SBUX stock did little until the conference call kicked off. China was a notable headwind with covid lockdowns and demand falling. However, the company remained very bullish on China during the conference call saying it expects its Chinese revenue to outstrip its US revenues eventually. Demand is strong and the SBUX stock began to pick up as the company said it cannot meet demand with its current capacity. Starbucks' CEO Kevin Johnson spoke on the call having been absent for the last few, but the company said it plans to name a new CEO in late 2022.

Starbucks continues to expand aggressively with the CEO saying that the company "will also be accelerating our new store growth with 90% of new stores being high-returning drive-thru." Also of note was pricing power being passed through to consumers: "Over the last year, we raised prices several times to address increasing inflationary pressures. Yet, we experienced negligible customer attrition, once again demonstrating the elasticity of demand for Starbucks coffee", said Johnson.

Starbucks suspended guidance due to the lack of visibility in China but will update guidance at September's investor day. The CEO said that:

"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".

Starbucks (SBUX) stock forecast: Chinese slowdown another bearish input

$79.18 is right where SBUX stock is trading in the premarket and is significant resistance. We are in a massively negative trend so turning that around requires probably much stronger earnings than what we have seen. Also, the lack of guidance is not helping. Yes, the CEO was very bullish but CEOs always tend to be on conference calls, they are selling to investors so they have to be.

While the company has passed on price rises it will cost some margin: "Even so, inflationary pressures have outpaced our price increases, resulting in several points of margin compression in the short term and costing us over 200 basis points in the first half of the fiscal year," said CEO Johnson on the conference call.

This macro environment is not going away. Neither is the slowdown in China. Lockdowns being lifted in China may give a slight boost to the next quarter but the overall economy is in stagnation. Bearish below $80, bullish above $90.

SBUX stock chart, daily