Can Starbucks (SBUX) Rebound from Underperformance?

Starbucks Corporation (SBUX), a leading coffeehouse chain, reported quarterly revenue and EPS that fell short of analysts’ expectations. SBUX stock Down more than 12% in pre-market trading The coffee company on Wednesday reported a disappointing quarter. Additionally, the stock is down nearly 18% over the past month and nearly 28% over the past six months.

for 2nd quarter SBUX’s net revenue for the year ended March 31, 2024 was $8.56 billion, a decrease of 1.8% year-over-year. that missed it Analyst revenue estimates are $9.16 billion.

Global same-store sales fell 4% as cafe traffic fell 6% in the quarter. Starbucks experienced lower same-store sales and lower traffic in all regions. In North America and the United States, traffic fell 7% and same-store sales fell 3%, marking the second consecutive quarter of difficulties in the domestic market.

Last quarter, management cited weak sales as the reason. store boycott It has to do with misconceptions about the position on Israel.

SBUX CEO Laxman Narismhan spoke to analysts about the company’s situation. conference call, “In this environment, many customers have become more selective about where and how they spend their money.” Narasimhan added that the worsening economic outlook in several markets has led to a significant decline in customer traffic.

SBUX’s International segment saw a 6% decline in same-store sales, with both average tickets and transactions falling. In China, the company’s second-largest market, average tickets fell 8%, leading to an 11% decline in same-store sales.

The coffee giant’s operating profit fell 17.2% year-on-year to $1.1 billion. Net income attributable to SBUX decreased 15% compared to the previous year to $772.4 million. It reported earnings per share of $0.68, compared to the consensus estimate of $0.80, down 13.9% year-over-year.

As of March 31, 2024, Starbucks had cash and cash equivalents of $2.76 billion, compared to $3.55 billion as of October 1, 2023. The company’s current assets were $6.47 billion as of October 1, 2023, compared to $7.33 billion.

“In a very challenging environment, this quarter’s results do not reflect the strength of our brand, our capabilities or the opportunities ahead,” said Laxman Narasimhan. “While our expectations have not been met, we understand the specific challenges and opportunities that lie before us.”

“We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in the long term and know that our triple shot reinvention strategy with two pumps will deliver unlimited potential for this brand,” added Narasimhan.

Meanwhile, Rachel Ruggeri, SBUX’s Chief Financial Officer, said, “It was a difficult quarter, but we learned lessons from our own underperformance and strengthened our focus with a comprehensive roadmap of prudent actions that make the path forward clear.” He said.

“On this path, we are committed to maintaining a disciplined approach to capital allocation as we navigate this complex and dynamic environment,” he added.

Gloomy outlook for fiscal 2024

For fiscal 2024, SBUX expects low single-digit revenue growth compared to previous guidance of 7% to 10%. The coffee giant also revised its forecast for global and U.S. same-store sales growth to a consistent low single-digit range, up from a previous forecast of 4% to 6%.

Starbucks’ same-store sales in China are expected to decline by a single digit from the initial guidance of a single-digit increase. The company also expects EPS growth to range from flat to low single digits. Initially, profits were expected to surge by 15-20% in 2024.

However, the company expects sales to improve in the fourth quarter of 2024.

SBUX CEO Narasimhan also said the company now expects supply chain cost savings of $4 billion over the next four years, revising its previous forecast of $3 billion over three years.

strategic initiative

In February 2024, SBUX and Bank of America Corporation (BAC)prominent financial institutions, Announced a new collaboration This gives millions of Bank of America cardholders and Starbucks Rewards® members in the U.S. the ability to earn more benefits by linking their accounts.

Bank of America cardholders and Starbucks Rewards members can earn an additional 2% cash back on eligible purchases on top of their existing rewards or card benefits. Additionally, if you link an eligible debit or credit card to your Starbucks Rewards account, you can earn one star for every $2 you spend at Starbucks. BofA.com/starbucks or starbucks.com/bofa.

“This partnership is the latest example of how we continue to invest in our most loyal customers and deepen their engagement and connection by offering benefits and experiences they can’t find,” said Ryan Butz, vice president of loyalty strategy and marketing at Starbucks. He said. different place.”

Despite near-term macroeconomic headwinds, the Seattle-based coffee company remains focused on long-term growth and significant returns to partners, customers and shareholders.

Last November, SBUX long-term growth strategy, Reinventing the Triple Shot with Two Pumps; Elevate your brand, strengthen and expand digital, identify opportunities in and out of stores for efficiencies, expand globally, and revitalize your partner (employee) culture.

For the quarter ended March 31, 2024, Starbucks had 16,600 U.S. stores, a 3% increase from the previous year. The company aims to reach 20,000 in the long term by leveraging the vast channels available to it to meet changing customer requirements and further enhance its brand.

“Innovating our store formats to purpose-defined stores, including pickup, drive-thru only, double-sided drive-thru, and delivery only, allows us to better connect with our customers through differentiated experiences,” Sara said. Trilling, Vice President and President, Starbucks North America.

Additionally, we will increase brand value through product innovation. SBUX also introduces a new step in digital flywheel acceleration. The coffee chain is seeking to strengthen its digital leadership through a strategy that aims to attract an additional 75 million members in the next five years to double global Starbucks rewards.

SBUX also announced new technology collaborations to improve partner and customer experiences. partnership with Microsoft Corporation (MSFT) Through our joint efforts in our Innovation Lab, we will combine industry-leading generative AI capabilities to take product development and personalization to the next level.

Additionally, Starbucks will collaborate with: Apple (AAPL) We launched our products in our first Green Apron Innovation store to experiment and improve our technology to help our partners around the world. The company will also reimagine customer in-store experiences through its Amazon One and Just Walk Out technologies.

SBUX also announced plans to expand its global store footprint to 55,000 stores by 2030 through further expansion of its digital platform across all licensed partners worldwide.

The company also announced it is implementing a $3 billion efficiency program, including $2 billion in off-premise sales expenses, to reinvest in the business and provide returns to shareholders through margin expansion and revenue growth.

conclusion

SBUX reported weaker-than-expected sales and earnings for the second quarter of fiscal 2024 due to a sharp decline in same-store sales. After a disastrous quarter, the coffee giant lowered its outlook for full-year revenue and earnings. However, sales are expected to start improving in the fourth quarter of 2024.

Regarding the disappointing financial performance, CEO Laxman Narasimhan said customers were more cautious about where and how they spent their money during the quarter. that much U.S. consumer confidence deteriorates The decline continued for a third straight month in April as consumers continued to grapple with high prices and rising interest rates.

Starbucks added that some U.S. stores were also briefly closed this quarter due to bad weather. China, the company’s second-largest market, has also had an uneven post-COVID-19 recovery. In addition, a boycott of stores is underway for supporting Israel in the war in Gaza.

Despite the short-term macro challenges, the coffee giant remains committed to its long-term growth strategy. Reinventing the Triple Shot with Two Pumps; Priorities included enhancing the Starbucks brand, strengthening the company’s digital capabilities, globalization through accelerated store expansion, maximizing efficiency through cost reduction, and revitalizing partner culture.

Starbucks continues to deliver significant value to our partners, customers and shareholders. March 21st SBUX Board of Directors Meeting Approved a quarterly cash dividend of $0.57. Each issued common stock will be paid in cash on May 31, 2024.

SBUX pays an annual dividend of $2.28 per share, which equates to a yield of 3.12% based on the current stock price. The 4-year average dividend yield is 2%. The company’s dividend payments have grown at a CAGR of 9.8% over the past five years. Additionally, Starbucks has raised its dividend for 13 consecutive years.

The road to recovery may be bumpy, but investors should closely watch SBUX’s improving same-store sales, gains from ongoing strategic initiatives, and global store expansion. So for now, it might be wise to wait for a better entry into this stock.