Fast food giants will report their next quarterly earnings in the coming weeks. What’s Wall Street looking out for? Among other things, the impact of inflation on the numbers like the cost of commodities and labor. Also of interest: Store growth and evidence that consumers are cheerier.
The good news is that labor costs and retention rates among employees are gradually improving allowing companies to return to “an increased focus on retention & training,” Lauren Silberman of Credit Suisse said in a note to investors.
Meanwhile, here’s what analysts expect from earnings announcements from five of the biggest food chains:
McDonald’s (MCD) is expected to be one of the first to report earnings on Tuesday, January 31, before the market open. Per Bloomberg consensus estimates, the fast food giant is expected to report the following Q4 2022 results:
- Revenue: $5.74 billion, down 4.6{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} year-over-year
- Adjusted earnings per share: $2.44, up 6.3{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} year-over-year
- U.S. same-store sales: up 7.62{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- International operated markets same-store sales: up 7.56{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
Wall Street’s take: That revenue is compared to $5.87 billion, when growth was down 5.3{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} in Q3; that came in higher than Wall Street estimates of $5.70 billion, boosted by higher menu prices.
CITI analyst Jon Tower said the firm expects “a generally positive update” from the company with strong trends here in the U.S., easing foreign exchange headwinds, and improvement in its foreign exposure, specifically “that the European business has already seen the worst of inflation’s impact on the top & bottom-lines.” Tower’s price target is $279.00 and has a Neutral rating.
Starbucks (SBUX) will unveil its next quarterly results, first-quarter fiscal year 2023, on February 2. Analysts expect a boost in revenue:
- Revenue: $8.74 billion, up 8.6{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} year-over-year
- Adjusted earnings per share: $0.77 per share, up 2.7{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} year-over-year
- U.S. Same Store Sales: up 9.13{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- International Sales: down 3.87{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- China Sales: down 13.31{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
Wall Street’s take: Last quarter, revenue jumped just 3.3{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}. Credit Suisse’s Silberman said the firm still views SBUX as “one of the highest quality growth companies in restaurants,” with accelerating “same-store sales and unit growth, and margin expansion to support 15-20{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} EPS growth.”
That makes Starbucks an “an attractive risk/reward” stock. Silberman also expects the removal of the zero-COVID 19 policy in China to boost sales.
The U.S. is the elephant in the room: Analysts are also expecting to hear more from the company about the changes to its reward program, which has gotten some poor reviews from fans. Those are set to take effect in the next fiscal quarter on February 13. Credit Suisse has an Outperform rating on shares and a price target of $116.00.
Starbucks reported its fourth-quarter 2022 fiscal year 2022 results back in November.
Starbucks Corporation (SBUX)
Yum! Brands (YUM), which operates KFC, Pizza Hut, Taco Bell ,and Habit Burger Grill, is expected to report February 8; analysts expect a big jump in earnings per share:
- Revenue: $1.9 billion, up 1.7{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} year-over-year
- Adjusted earnings per share: $1.26 per share, up 23.3{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} year-over-year
- Same-Store Sales: up 4.40{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- KFC: up 4.84{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- Pizza Hut: 1.70{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- Taco Bell: 6.30{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
- Habit Burger Grill unit: 0.86{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb}
Wall Street’s take: On Dec. 13, the fast food company hosted an Investor Day. Executives outlined system-sales growth of 10{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} for its Q4 2022, driven by strength in the Taco Bell U.S. business.
Andrew Charles of Cowen, who has a price target of $155.00 and Outperform rating, said there was major “upside” to Taco Bell’s same-store sales, which makes up roughly 30{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} of the company’s operating profits. Charles added that opportunities for upside include how the brand balances value and premium menu innovation, and “to a lesser degree” how the company benefits from late-night sales (8 p.m.- close). That’s “where the brand is having an easier time staffing versus peers,” he said. Digital is a focus, accounting for $24 billion in sales as of Q3 2022, with a 40{bb67dc8068aeb19f357bd521b023405218769edfdf2fbe8fd5046748dc5a5bcb} digital sales mix.
