Starbucks (NASDAQ: SBUX) released its first quarter fiscal 2025 results on Tuesday, January 28, 2025, to a tepid market reaction. The multinational chain of coffee houses and roastery reserves reported some positive news, but not enough to significantly move the stock.
Starbucks Q1 Results
The company reported a 4% decline in global same-store sales, driven by a 6% dip in comparable transactions and partially offset by a 3% rise in average tickets. In North America and the US, the company reported a 4% same-store sales decline, driven by an 8% dip in comparable transactions and partially offset by a 4% increase in average tickets.
Internationally, same-store sales fell 4%, driven by a 2% dip in average ticket and comparable transactions. In China, same-store sales fell 6%, driven by a 4% dip in average tickets and a 2% dip in comparable transactions.
While revenue remained flat at $9.4 billion, it beat forecasts of $9.32 billion. Meanwhile, earnings per share declined 23% YoY to $0.69 but beat expectations of $0.66. Global same-store sales marked their fourth consecutive quarterly decline.
The company reported a 390-basis point contraction in its operating margin YoY to 11.9%, driven by investments to support its Back To Starbucks plan. It also stated that its 90-day active members loyalty program in the US had 34.6 million at the end of the quarter, a 1% YoY increase and a 2% quarter-over-quarter increase.
Starbucks Turnaround Plan
In its preliminary full-year fiscal 2024 results, Starbucks announced a turnaround plan to revamp the company’s growth prospects. At the time, Rachel Ruggeri, the Chief Financial Officer, stated, “We are developing a plan to turn around our business, but it will take time. We want to amplify our confidence in the business and provide some certainty as we drive our turnaround. For that reason, we have increased our dividend.”
Starbucks has recently announced some significant changes as part of that turnaround plan. For instance, on January 27, the company updated its terms of service. Customers can now order any beverage “for here,” which will be served in a glass, coffee mug, or clean personal cup from home. Customers will also enjoy a free refill for hot brewed or iced coffee or hot or iced tea.
Additionally, the company announced the return of milk, creamer, and various sweeteners to the condiment bar. It has also made changes to its bathroom policy, which will now be restricted to paying customers.
Fiscal 2025 Outlook
Starbucks did not provide a forecast for fiscal 2025. However, CFO Rachel Ruggeri said they plan to cut 30% of the dishes and beverages from the menu by the end of the year. The CFO reported that they cut back on promotions in the first quarter, leading to 40% fewer discounted transactions than the previous year. She added that they plan to increase their marketing spend this year, balancing out the savings from the cut in promotions.
Starbucks (SBUX) Market Performance
Following the better-than-expected results, SBUX stock rose to $104.01 per share in premarket trading as of 8:27 AM EST, a 3.59% increase from the previous closing price. In the past six months, the stock has risen 35.6%, while in the past year, it has increased 8.20%.
When compared to the broader market, SBUX has delivered mixed results. For instance, the Consumer Cyclical sector has gained 24.22% in the past six months and 31.74% % in the past year. Meanwhile, the S&P 500 has risen 11.15% in the past six months and 24.06% in the past year.
Looking at the price-to-earnings ratio, SBUX is comparatively more expensive than peer McDonald’s (MCD). SBUX has a forward P/E of 32.47, while MCD has a forward P/E of 23.04.
Analysts remain optimistic about the stock’s future, giving it a moderate buy rating. They forecast a price of $107, which is a 6.56% upside. The most optimistic forecast a high of $124, while the most pessimistic expect the stock to fall to $76 per share.
Is Starbucks A Good Investment in 2025?
While Starbucks has experienced four consecutive quarters of earnings decline, it still has several positive aspects. One of them is the turnaround plan, which is expected to help grow sales in the long term. However, one of its main strengths is the Starbucks brand, which gives it a huge competitive edge.
It is also worth noting that investor confidence remains strong despite the revenue stagnation in the recent quarterly results. Consequently, adding SBUX to your portfolio could potentially have a positive impact on it in the medium term.
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