Starbucks Shares Plummet 14% Amid Weak Demand and Forecast Cuts
Pre-market Plunge
Shares of Starbucks (NASDAQ: SBUX) tumbled nearly 14% before the bell on Wednesday, following the coffee giant's decision to slash its annual forecasts. The move comes amidst persistently feeble demand in the United States, as customers grapple with inflation concerns, alongside a slower-than-anticipated rebound in China.
Impact of Price Hikes
The company's decision to implement several quarters of price hikes has prompted customers to opt for home-brewed coffee over visits to cafes and restaurants, consequently denting the business for chains like Starbucks.
Weather Woes and Regional Conflicts
Severe cold weather conditions in the U.S. further dampened sales at Starbucks stores, while the company faced challenges in the Middle East due to the Israel-Hamas conflict.
Analyst Insights
In response to Starbucks' latest developments, Danilo Gargiulo, a senior analyst at Bernstein, expressed concerns about the company's inability to stem the decline in foot traffic and the escalating macroeconomic and competitive dynamics in China.
Revised Forecasts
Starbucks now anticipates its full-year comparable sales, both globally and in the U.S., to range from a low single-digit decline to flat. This adjustment contrasts sharply with its previous guidance of 4% to 6% growth. Additionally, the company has revised its per-share profit growth forecast to a range between flat and low single digits, compared to the earlier projection of 15% to 20% growth.
CEO Commentary
Addressing the company's post-earnings call, CEO Laxman Narasimhan attributed the challenging sales environment to customers becoming more discerning in their spending habits, especially with the majority of stimulus savings already expended.
Sales Performance
For the second quarter, Starbucks reported a 4% decline in global comparable sales, significantly below the 1.44% rise estimated by analysts, according to data from LSEG.
Comparative Valuation
Starbucks' forward price-to-earnings multiple (P/E), a standard measure for evaluating stocks, stands at 20.88. This figure compares to 21.54 for industry peer McDonald's (NYSE: MCD) and 20.83 for Restaurant Brands (NYSE: QSR).
