Shares of Starbucks Corporation SBUX declined 4.2% in the after-hours trading session on Tuesday after the company reported disappointing preliminary results for the fourth quarter and fiscal 2024.
For the fiscal fourth quarter, the coffee giant saw a year-over-year global comparable store sales decline of 7%, with consolidated net revenues dipping 3% to $9.1 billion. GAAP earnings per share were 80 cents, reflecting a 25% year-over-year drop on a constant-currency basis. Then again, adjusted earnings per share were 80 cents, down 24% year over year. A weak North America performance affected the results. In the quarter, U.S. comparable store sales fell 6% year over year, thanks to a 10% drop in comparable transactions, overshadowed by a 4% increase in average ticket.
China, one of Starbucks' key international markets, also posted underwhelming results, with a 14% year-over-year drop in comparable store sales. This was attributed to an 8% decline in average ticket and a 6% decrease in transactions, exacerbated by stiff competition and a softening economic environment.
For the fiscal year, Starbucks reported a modest 1% increase in net revenues to $36.2 billion, although global comparable store sales declined 2%. Both GAAP and non-GAAP earnings per share stood at $3.31, down 8% and 6%, respectively, on a constant-currency basis.
Traffic Remains Concerning for Starbucks
Starbucks’ increased investments in expanding its product lineup, along with ramped-up in-app promotions and integrated marketing efforts aimed at boosting customer frequency, failed to deliver the anticipated results. Despite these strategies, the company saw little improvement in customer behavior, with traffic remaining below expectations for both Starbucks Rewards members and non-members. This ultimately led to a lower-than-expected performance.
SBUX Suspends FY25 Guidance
The company has suspended the guidance for fiscal 2025, citing a need for a thorough business reassessment amid the ongoing leadership transition.
CEO Brian Niccol emphasized the company's focus on returning to its core values and improving customer experience through a strategic "Back to Starbucks" plan, which aims to reignite growth in the future.
Starbucks’ Earnings Estimate Revisions
Starbucks has seen a downward trend in its earnings estimates over the past 60 days. The Zacks Consensus Estimate for fiscal 2024 and 2025 has been revised lower, with that for fiscal 2024 dropping 0.3% and the same for fiscal 2025 declining 2.3%. This revision reflects tempered expectations for the company's near-term financial performance amid ongoing challenges.
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SBUX Stock Outruns Industry in 3 Months
While Starbucks’ stock has experienced volatility this year, it has risen 29.6% over the past three months, outperforming the industry’s growth of 20.4%. The company’s recent stock rally can largely be attributed to the appointment of Brian Niccol as its new CEO, succeeding Laxman Narasimhan. Niccol, known for his successful leadership at Chipotle, wherein he guided the company through a significant turnaround and drove strong same-store sales growth, brings a wealth of experience to SBUX.
Price Performance
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A Look at Starbucks’ Valuation
The SBUX stock is trading just below the industry. With a forward 12-month Price/Earnings ratio of 24.93X, it sits below the industry average. Despite this, the SBUX stock is priced higher than the broader Retail-Wholesale sector’s 23.91X and the S&P 500’s 22.22X. The company is also currently trading at a premium compared with other industry players like Darden Restaurants, Inc. DRI, Domino's Pizza, Inc. DPZ and Restaurant Brands International Inc. QSR.
P/E (F12M)
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SBUX Raises Dividend
Starbucks remains committed to long-term shareholder value, announcing a quarterly dividend increase from 57 cents to 61 cents per share. Following the hike, SBUX’s new annualized dividend amounted to $2.44 per share, giving a yield of 2.52%. We applaud the company’s continued dedication to boosting shareholder returns, even amid challenging times.
Conclusion
Starbucks’ fourth-quarter fiscal 2024 results highlight significant challenges, making the stock less appealing for investors at the moment. Weak performances in the United States and China are hurting the company. Despite efforts to boost customer engagement through expanded offerings and marketing, traffic remained below expectations. Compounding this, Starbucks suspended its fiscal 2025 guidance. With weakening sales, downward earnings revisions, and stiff competition in China, investors may want to steer clear of SBUX for now. The company currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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