Starbucks Corporation (NASDAQ: $SBUX) is a renowned American multinational chain of coffeehouses and roastery reserves headquartered in Seattle, Washington. It is the premier specialty coffee roaster, marketer, and retailer, operating over 38,000 stores globally. Starbucks offers various hot and cold beverages, whole bean coffees, food items, and other coffee-related accessories.
On April 30, 2024, Starbucks (SBUX) reported disappointing financial results for the second quarter of fiscal year 2024, missing analysts’ estimates and prompting a downward revision of its full-year guidance. The company’s performance was weighed down by a surprise decline in same-store sales, reflecting weaker consumer demand and other challenges.
Starbucks Q2 FY24 Financial Performance
The company’s net revenues dropped by 2% to $8.6 billion, missing analysts’ expectations of $9.1 billion. Same-store sales fell by 4%, mainly due to a 6% decrease in foot traffic, partially offset by a 2% price increase. In China, same-store sales plunged by 11%, driven by an 8% decline in average spending per customer.
As a result, Starbucks’ net income decreased to $772.4 million, or 68 cents per share, compared to $908.3 million, or 79 cents per share, a year earlier. Operating income fell to $1.1 billion in Q2 FY24, down from $1.2 billion in Q2 FY23, with an operating margin contraction from 19.1% to 18.0%.
Adjusted earnings per share (EPS) of $0.68 marked a 14% decline over the prior year, missing analysts’ estimate of $0.80. Moreover, 90-day active loyalty members decreased to 32.8 million, down from 34.3 million in the previous quarter, suggesting challenges in retaining loyal customers.
Laxman Narasimhan, CEO, acknowledged the challenges, stating, “In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead.” However, he remained confident, asserting, “We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand.”
Revised Downward: 2024 Guidance Updated
Starbucks has revised its 2024 projections downward for the third time this fiscal year. The company now expects global revenue growth to be in the low single digits, a decrease from the previous range of 7% to 10%. Both global and U.S. same-store sales are anticipated to either decline slightly or remain stagnant, while China’s same-store sales are forecasted to experience a single-digit decline.
Furthermore, earnings per share are now projected to be flat or to see low single-digit growth, down from the previously forecasted increase of 15% to 20%.
Starbucks’ Growth Moves: App Tweaks, Menu Revamp
Starbucks’ executives acknowledged that while the company’s dedicated customers have remained loyal, thanks to discounts offered via the company’s mobile app, occasional coffee drinkers have been visiting less frequently. To address this, Starbucks plans to offer a version of its app that allows customers to order without being loyalty members, aiming to attract more occasional visitors.
Starbucks is also introducing a variety of menu enhancements, such as boba tea-inspired pearls, energy drinks with zero to low calories, an expanded selection of sugar-free syrups, and a delectable sandwich featuring egg, pesto, and mozzarella. Additionally, the company is exploring ways to meet overnight demand from 5 p.m. to 5 a.m. However, according to analysts, recent menu innovations, such as Lavender and Oleato, have reportedly left consumers wanting.
Furthermore, Starbucks plans to open its first stores in Ecuador by July and in Honduras by year-end for expansion. It will mark the brand’s 88th market globally and 26th in the Latin America and Caribbean region. However, in Q2, the company opened 364 new stores, reaching 38,951, with 52% company-operated and 48% licensed.
Starbucks: Dividend and Bond Issuance
The Board of Directors has declared a cash dividend amounting to $0.57 per share, slated for disbursement on May 31, 2024, to shareholders listed as of May 17, 2024. In February, the company executed a $2.0 billion bond issuance, with the net proceeds intended for general corporate purposes, including repayment of upcoming debt maturities.
Starbucks (SBUX) Stock Update
Starbucks (SBUX) investors experienced a brutal sell-off on Wednesday, with the stock plummeting 17.4%, marking its worst decline since early 2020. The trading session closed at $74.44, reflecting a substantial 15.88% decrease from the previous day’s closing price of $88.49. Notably, Starbucks has seen a decline of 22.47% since the start of the year and a substantial 28.92% drop over the past year.
Currently, SBUX stock sits 31.15% below its 52-week high of $108.12 but remains 2.44% above its 52-week low of $72.67. The market capitalization is $84.35 billion, with a short interest of 17.79 million shares as of April 15, 2024. It represents a 13.17% change and constitutes approximately 1.61% of the stock’s float.
Analysts’ Mixed Recommendations on SBUX
Wall Street analysts have mixed opinions on Starbucks’ (SBUX) stock. While the overall recommendation is a Moderate Buy with an average price target of $103.15, predictions range widely from $87.00 to $120.00.
Deutsche Bank recently downgraded Starbucks (SBUX) from Buy to Hold, lowering their price target from $108 to $89, citing a challenging fiscal Q2 report. Similarly, William Blair downgraded Starbucks from Market Perform to Outperform.
Despite these adjustments, some analysts maintain a Buy rating. An analyst at Bank of America, Sara Senatore, reiterated her Buy rating, expressing optimism for earnings growth in fiscal year 2025.
In a client note, Peter Saleh emphasized Starbucks’ strong position as a globally recognized brand with solid economics and a loyal customer base. Saleh believes that challenges like these are historically fixable and often present good buying opportunities. Saleh adjusted his price target to $100 while expressing confidence in the company’s long-term prospects.
Starbucks (SBUX) Stock: Worth Buying in 2024?
As Starbucks navigates through a challenging quarter, it remains committed to revitalizing its brand and regaining customer loyalty. By introducing innovative menu items, enhancing its mobile app experience, and exploring new growth opportunities, the coffee giant aims to reignite consumer interest and drive growth.
While the road ahead may be bumpy, Starbucks’ resilience and strategic efforts position it to weather the storm and emerge stronger, capitalizing on its global recognition and dedicated customer base. Investors will closely monitor the company’s execution of its reinvention strategy, which could determine its long-term success in a highly competitive market.
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