Starbucks falls after hours on Q1 earnings miss, China sales concerns

Yahoo Finance's Brian Sozzi joins the Live show to highlight Starbucks' earnings miss citing disappointing same-store and overseas sales.

Video transcript

BRAD SMITH: Let's switch gears briefly and talk about the brand of the green siren. Starbucks is out with its first quarter earnings. Our own Brian Sozzi, he's sipping on coffee 24/7. He's got the numbers for us. Brian.

BRIAN SOZZI: Hey, Brad. So nice to see you in the afternoon. Always a pleasure being on with you. I'm going to write this headline very simple for all you SEO friendly people out there from left to right. Starbucks stock priced for perfection, dash, dash, dash, here's why they didn't deliver. A couple of red flags in this quarter. First up, global same store sales up 5% year over year. The estimates were for an increase of about 6.8%. Oh, yeah, they also missed on earnings by $0.02.

The problem here, I think, and this is why the stock is selling off initially after-hours and why the current quarter missed, it was China, China, China. Same store sales-- I'll just say it, guys-- they just crashed, down 29% year over year versus estimates for a decline of 13.3%, in large part because of just the chaotic reopening of the Chinese economy, of course, impacting China.

Also, another disappointing area for this quarter, operating margins 14.5% on a non-GAAP basis 14.7% estimate. So lots of disappointments in this quarter. I think the Street is playing off of those disappointments, instead of what Starbucks said they are reiterating their guidance here, guys. And I think that guidance really reflects their hope and belief on two things. First up that the Chinese economy rebounds later this year and same store sales ultimately increase over easy year over year comparisons. And number two, there is no US recession in the US, and consumers continue to pay higher prices for their various cups of coffee.

But to that point, I will note global-- within that global same store sales estimate, transactions were down 2%. Transactions down 2%. Telling you there are some consumers out there balking at these higher priced coffee Starbucks starting to shove down your throat.

DAVE BRIGGS: [LAUGHS] I know you like the treinta, right? That giant jug of coffee. The expectation was--

BRIAN SOZZI: I'm a buyer. It's $8.

DAVE BRIGGS: The expectation was better numbers--

BRIAN SOZZI: But I don't care.

DAVE BRIGGS: --in China and a bit of a pullback here in the United States. That's what analysts were expecting. Was the bigger disappointment here or China?

BRIAN SOZZI: China by far, Dave. Sure, the market understood that Starbucks and a lot of brands like it, like a Yum Brands, all these companies with outsized exposure to China, thousands of stores in this country are going to see same store sales declines. But still, in that initial couple of minutes after an earnings report to see us mighty Starbucks, which has relied on China for years to help propel its growth, to see same-store sales just flat out, crashed 29%, I mean, that's a lot for, I would argue, an already nervous market to take.

Now, of course, there'll be more updates on this Starbucks earnings call. Very shortly, they will go into greater detail in that outlook that they reaffirmed. I am not a fan of a company not putting their full outlook on their earnings press release. The Starbucks is doing this yet again. They make it, too, into the earnings call. I wish they would just give me the numbers on the earnings press release. Nonetheless, we'll be on that call.

DAVE BRIGGS: All right, get another coffee, brother. Are you a cold brew guy?

BRIAN SOZZI: I am a cold brew. And, you know, I was hoping to actually come on, Dave, and see you with no shirt again. But you know what? We all have wishes. We all have wishes. I really liked that segment.

DAVE BRIGGS: Sorry to disappoint, my friend.

BRIAN SOZZI: Good day.

DAVE BRIGGS: Good to see you, Brian Sozzi. Thank you so much.