Stabucks (NASDAQ: SBUX) stock fell 19% in the first half of the year, according to data from S&P Global Market Intelligence. The coffee giant is struggling with growing its sales, and it looks to be out of step with changing coffee-consumption trends.
The bigger the company, the harder to change
It's always counterintuitive to imagine that a company's success can lead to its failure, but it's actually quite logical. Take Starbucks. It has so many stores and such a distinctive model that if there's a challenge to that model, it's not easy to change it. And it works this way for any great industry leader. That's why you often hear leaders tout "agility" as a positive quality. Trends change and industries need to adapt.
In fact, this is not Starbucks' first go at this. It was struggling with its branding and mission after CEO Howard Schultz left the company, and he returned in 2008 to redefine the company's image and model. That's when Starbucks became the "third place" for customers to hang out and ushered in a new growth era for the coffee king.
But things have changed since the pandemic, and although Starbucks already considered itself a digital-first company, it hasn't fully evolved to another new era, where speed and digital orders matter more than hanging out. Schultz came in again to pick up the pieces, and although he's already moved on and left the company in other capable hands, it's going to take time to fully implement changes throughout its vast empire of coffee goodness.
In the 2024 fiscal second quarter, ended March 31, sales were down 2% year over year, and comparable sales were down 4%. Operating margin contracted 1.5% points to 12.8%, and earnings per share fell 14% to $0.68.
Where do we go from here?
The truth is, it's not a bad showing for the inflationary environment. There's pressure all over, and Starbucks is already one of the most expensive cups of coffee out there. There's only so far it can raise prices while fielding strong competition from new chains and specialty companies.
It's seeing tremendous success with its membership program, which continues to grow and accounted for 60% of the U.S. morning business in the second quarter. Management has many plans to keep up the momentum in membership and plug up the holes in abandoned carts, which were due to speed and availability issues.
It also has an overarching strategy to bring Starbucks up to meet today's demands, with new, faster equipment, lots of smaller stores, and drink innovations.
Don't count Starbucks out. It pays an attractive dividend that yields 3% at today's price, and it trades at a low P/E ratio of 21. Value investors might want to take a nibble.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
