Starbucks reports earnings for its first fiscal quarter on Tuesday, which will effectively kick off the latest round of earnings reports from the last three months of 2024.
This earnings season will be particularly notable, because of the level of uncertainty about the state of the restaurant industry coming off a particularly difficult operating period. In addition, Donald Trump has returned to the presidency with a flurry of new policy initiatives. And there have been some epic, early-year weather-related events.
Here’s what we’re looking for this earnings season.
Any early signs of a Starbucks turnaround?
Brian Niccol took over as Starbucks CEO and has been active, as you can see here. The coffee shop giant is coming off one of the worst periods in its history, including a 10% traffic decline in its fiscal fourth quarter.
Yet there are at least some green shoots. Starbucks’ Red Cup Day apparently generated record sales, which could be a key sign for the chain given that the event a year earlier was the first true signal that something was off in Seattle.
We think Niccol will likely need some time for a true turnaround. But the company could use some small wins in the meantime.
Will optimism prevail?
Fast food traffic was brutal last year as consumers demonstrated their frustration with menu price inflation by eating out less often. Yet there were some signs of improvement in October and November as chains like McDonald’s, Wendy’s and Burger King generated traction with marketing initiatives. December was another matter.
Executives at ICR were cautiously optimistic of a turnaround. But we’re curious to hear from more executives about whether some of this end-of-year improvement could last. Or whether it was a mirage created by a few successful ad campaigns.
Weather and fires
As a rule we take early-year sales results with a gigantic grain of salt because weather has a huge impact on consumers’ willingness to dine out, or restaurants’ ability to serve them. It’s tough to get to Applebee’s when there’s a foot of snow on the ground.
Or, apparently, fires. In January we’ve seen epic fires in Los Angeles, a huge restaurant market, and unusual snowfalls throughout the South—also a big restaurant market. Expect plenty of talk about all this, particularly for restaurant chains with heavy concentrations of locations in either market.
Trump 2.0
President Trump has started his second term about the way you’d expect he would, with a bunch of early-term executive orders and plenty of volatility and uncertainty.
As we wrote here, many of these issues could unleash a new round of cost increases if they are fully implemented, which could prove particularly challenging for a restaurant industry with little pricing power. At the very least, it adds another layer of uncertainty, but we’re curious about executives’ views on these issues.
Is McDonald’s out of its outbreak doldrums?
The fast-food giant appeared to turn things around in October until an E. coli outbreak hit its restaurants in Colorado and several other states. The outbreak was the fault of a supplier, Taylor Farms, which is no longer a supplier and, according to federal investigators, failed multiple inspections over things such as handwashing.
The company has responded the way you’d expect it would respond, with a lot of marketing. But these situations can be stubborn—just ask Chipotle. Investors will be curious to see if consumers have put that incident into the rear-view mirror.
Can Chili’s keep it up?
The biggest surprise of 2024 was Chili’s, that of the 14% same-store sales results. It was such a strong, notable performance for a legacy casual-dining chain that we gave Brinker CEO Kevin Hochman an award for the efforts.
A bigger challenge for the chain may be to keep that momentum. The U.S. consumer has a short attention span, especially these days, and can turn quickly if things seemingly don’t add up.
The state of the pizza business
One of the quietly more fascinating storylines in the industry right now is the massive change happening with the pizza sector. While other sectors are adding delivery, that business is shrinking and shifting at traditional pizza chains like Domino’s, Papa Johns and Pizza Hut.
Those concepts are doing less of their own delivery, more through aggregators, and consumers are more likely to get carryout. How these chains respond to that dynamic will be key going forward, and we remain curious about what these companies do.
What about China?
When we asked our friend Joel Silverstein what he thought about Trump’s tariff threats regarding China, he mostly dismissed them, largely because there are enough worries about China as it is. Only about 20% to 25% of foodservice businesses there are making a profit, he said, because of intense price competition.
Every big U.S. restaurant chain, including McDonald’s, Starbucks, Yum Brands, etc., are intent on growing in China, or want to grow there. But the market has been problematic, to say the least. Where that market is will be key for these companies’ expansion plans.