Starbucks lowers price target after major quarterly results miss and weak guidance

Summarize this content to 100 words Starbucks stock plummeted about 11.5% on Tuesday night after the coffee giant's quarterly results fell far short of expectations. The company also lowered its outlook for fiscal 2024, leaving little room for optimism that store foot traffic will recover quickly. LSEG said revenue for the second quarter of fiscal 2024 was $8.56 billion, down 2% from a year earlier, lower than analysts' expectations of $9.13 billion. Adjusted earnings per share were 68 cents, down 14% from a year ago and below expectations of 80 cents. Reasons to own Starbucks: Starbucks is one of the most famous brands than any restaurant. But in recent years, operations have been challenged by store inefficiencies and China's slow recovery. Under CEO Laxman Narasimhan, we believe we have a plan in place to unlock growth and improve profitability over the long term. Competitors: Dutch Bros., McDonald's, Dunkin' Donuts Recent Purchases: February 14, 2024 Started: August 2022 Conclusion We've been saying for weeks that Starbucks should prepare for failure when it comes time to report. I did. We thought this setup was similar to a pre-quarter earnings call when the entire market knew there was a possibility of failure. The stock did not fall on the news when management said it missed out on a profit of 3 cents per share last quarter but had multiple paths to achieving its 15% to 20% earnings growth outlook. Ta. This quarter was very different. The temporary challenges the company noted last time continued into this quarter. These ongoing issues, combined with what management said is severe weather and a difficult consumer environment, have resulted in a sharp decline in store foot traffic, making it extremely difficult to drive margin improvement. It became difficult and I ended up missing out on much more profit than I expected. Part of the shortage is due to unmet demand, which management is addressing with plans to free up production capacity and improve the customer experience. But the continued poor performance here makes me wonder if Starbucks has increased its prices too much and alienated its customer base too much. It's hard not to be concerned when you see his number of 90-day active members in the US using the Starbucks Rewards loyalty program decreasing month-over-month. This number of members decreased from 34.3 million a quarter ago to 32.8 million. The result was still a 6% increase year over year. Our understanding is that this is considered the company's most loyal base. Starbucks currently faces too many headwinds, and the timing is uncertain as to when it will be overcome, so a steep drop in stock price is not something we plan to buy anytime soon. As a result, we are lowering our rating to '2' and lowering our price target to $90. This is approximately 25 times the lower bound of management's new EPS outlook. North American same-store sales, a key measure for the restaurant industry, fell 3%, well below the 0.5% growth expected by Wall Street analysts, according to FactSet. The most concerning thing here was that transaction value was down by 7%, representing a significant drop in people coming to stores. Airline tickets rose by his 4%, offsetting some of the weak trading, but there are limits to price increases. While the quarter experienced challenges related to consumer caution, management said inclement weather was also a significant factor, with a 3 percentage point impact on both U.S. and company-wide profits. Another headwind has been a decline in store visits from so-called “frequent customers,” which are less frequent than Starbucks' most loyal customers. During the conference call, CEO Laxman Narasimhan highlighted three execution opportunities to get the U.S. business back on track. The first is to invest in new tools and implement new processes to meet demand across time zones to drive future growth. One of the solutions that Starbucks has come up with is the Siren Craft System. Stores that have implemented this have already increased by nearly 1 point per year across the peak. We're glad to hear this is a focus, as the company needs to improve its overall operations and do a better job of reducing wait times in stores to drive growth. Second, we will continue to focus on our core coffee-forward products while launching more new products. Third, reach customers who sometimes don't take advantage of rewards and offer them more value. Unlike last quarter, where operating margin expansion offset some of the same store growth slowdown, profitability decreased primarily due to deleveraging, increased investment in store partner wages and benefits, and increased promotional activity. It decreased by 110 basis points from the previous year. However, the company said efficiencies created through its reinvention plan helped offset some of the deleveraging. At Starbucks' international division, same-store sales fell 6%, below expectations for 0.5% growth. This decrease was balanced by a 3% decrease in both transactions and tickets. Performance in China was even worse, with comparative sales down 11%, transaction value down 4% and tickets down 8% as the company ramped up promotional efforts to deal with increased competition from local players. Ta. People on the street were calling for comparable sales in China to be flat, according to FactSet. However, it was not only the promotional environment that influenced this result. A decline in the number of occasional visitors and changes in holiday patterns also weighed on performance. Excluding China, the International segment grew revenue and profits in Latin America, Asia Pacific and Japan. Guidance Following disappointing second-quarter results, the company made several downward revisions to his 2024 guidance. The changes are: Global revenue growth was in the low single digits, up from 7% to 10% previously. Global and U.S. corporate growth rates are now within the range of flat to low-single-digit declines from the previous range of 4% to 6%. Comparable sales in China are expected to decline by a single-digit percentage, compared to expected low-single-digit growth from Q2 to Q4. Global net new store growth was tweaked to 7% from 6%. The growth rate has been revised from 13% to 12% because the pace of store openings in China has slowed. Operating margins are expected to be flat versus previous expectations of gradual expansion. Adjusted EPS growth is expected to be flat to low single digits, down from the historical 15%-20% range. (Jim Cramer's Charitable Trust is a long SBUX. See here for a complete list of stocks.) As a subscriber to Jim Cramer's CNBC Investment Club, you will receive trade alerts before Jim makes a trade. I will receive it. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in the charitable trust's portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.A Starbucks coffee cup sits on a table at a store in Manhattan, New York City, on January 30, 2024.Spencer Pratt | Getty ImagesStarbucks Shares plunged about 11.5% Tuesday night after the coffee giant's quarterly results fell far short of expectations. The company also lowered its outlook for fiscal 2024, leaving little room for optimism that store foot traffic will recover quickly.
https://www.cnbc.com/2024/04/30/starbucks-gets-a-price-target-cut-after-a-brutal-quarterly-miss-and-light-guidance.html Starbucks lowers price target after major quarterly results miss and weak guidance