Starbucks stocks face a decline due to missed estimates, slashed guidance, and ongoing challenges, shaping a complex outlook.
- Starbucks stocks plunged over 15% post-earnings due to missed estimates and slashed guidance, reflecting weak financials and bleak prospects.
- Despite efforts to communicate value and regain revenue, Starbucks faces ongoing challenges in key markets, impacting growth projections.
- Analyst ratings suggest a complex outlook, with SBUX stocks trading at a less attractive multiple amidst persistent uncertainties.
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Starbucks store. Credit: June Andrei George
We’ve already covered a range of results this Q1, with many good earnings, such as Microsoft (MSFT), Amazon (AMZN) and several others. But we’ve also seen some dismal performances this quarter, leading to significant post-earnings declines, as was the case with Starbucks (SBUX).
In Starbucks’ case, the stocks have already accumulated a drop of over 15%, driven by weak financials, but also bleaker prospects for the company.
What happened with Starbucks Stocks?
Starbucks reported earnings in Q2 FY that missed analysts’ estimates both in earnings and revenue. Its EPS was $0.90, while estimates were at $0.93. As for revenue, it was $9.43 billion against expectations of $9.59 billion.
Delivering a revenue 2% below expectations isn’t justification for SBUX stocks retracting by 15%; in fact, this was just one of the catalysts for pessimism. Another key point was the guidance cut due to underperforming revenues in the U.S., China, Middle East, and elsewhere, with expectations of continued headwinds.
In Q1 FY, Starbucks provided strong guidance for the fiscal year 2024, such as 7%-10% growth in global revenue, expansion on operating margin, and most importantly, 15%-20% EPS growth. All of these factors were downgraded, as can be seen in the comparison images below. Now, the expectation is for global revenue to advance in low single digits, flat operating margin, and EPS flat to low single digits.
Previous FY24 Guidance
New FY24 Guidance
Is SBUX Stock Cheap Now?
Jim Cramer, in an interview with Starbucks CEO Narasimhan, also asked pertinent questions about the weak quarter. Asking things like why it wasn’t announced earlier that there would be this guidance change if the business was doing so poorly, and stating that other Starbucks peers didn’t have such apparent drops in their business.
Among the CEO’s responses, he stated that “we have not been able to communicate to them the value we provide.” And listed some actions they’re taking to regain revenue, such as bundles and offers to communicate with occasional customers to regain these people’s visits.
Even with the company expanding in some countries and taking these actions, it’s safe to say that Starbucks is facing a very delicate moment, and as the management itself informed in the call, these headwinds may continue for a while.
And this goes against the shareholder value generation outlook. A company facing clear growth problems and with flat EPS prospects shouldn’t be traded at the same multiple as a company that will deliver 15-20% EPS growth and revenue and profitability expansion.
Thus, there is already a significant contraction in SBUX stocks’ multiple post-earnings, now trading at something close to 19.6x P/E NTM, which still doesn’t seem so attractive given the series of problems they face.
When we look at analysts’ ratings, of the 23 available on TipRanks, 13 are hold, while 10 are buy, which is also an indicator of the company’s complex moment.
The Bottom Line
Taking into account the information above, it is clear that Starbucks is indeed going through a complicated moment in its business, evidenced not only by the poor financials and management messages but also by the impactful interview with the CEO conducted by Cramer.
Starbucks Stocks still seem far from finding a solution, affected by external and possibly internal problems, which consequently affect the shareholder value generation perspective.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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