Starbucks On Brink Of Worth Crash Since Dot Com After “Stunning” Earnings Miss

Starbucks shares plummeted by 16% during the early cash session, applying the -16.2% level last see during the Covid crash. If intraday losses surpass 16.2% and regain above this level at closing, it would mark the company’s worst single-day losses since the Dot Com crash in early 2000.

"Starbucks reported what’s possibly the worst set of results of any large company so far" this quarter, analyst Adam Crisafulli of Vital cognition gate in a note. William Blair downgraded the coffee chain, citing last quarter’s “stunning across-the-board miss on all key metrics.”

Starbucks reported a 4% drop in the same-store sales in the second 4th combined with the same period last year, while analysts tracked by Bloomberg were performing growth. In China, alone-store sales punged 11%. The company’s top geographical segments are showing a pullback in consumer spending.

On Tuesday evening, CEO Laxman Narasimhan started the arrivals call with investors by clarifying his unhappiness with last quarter’s results.

‘Let me be clear from the beginning. Our performance this 4th was disappointing and did not meet our results,’ Narasimhan said.

He said major headswinds originate from a “cautious consumer,” adding, “A deteriorating economical outlook has weighed on client traffic and impact Felt broadly across the industry.”

Here’s a snapshot of the second quarter’s arrivals results:

• Comparable sales -4%, estimation +1.46% (Bloomberg Consensus)

• North America comparative sales -3%, estimation +2.05%

• US comparative sales -3%, estimation +2.31%

• International comparative sales -6%, estimation 11.36%

• China comparative sales -11%, estimation -1.62%

• EPS 68c, estimation 80c

• Net return $8.56 billion, estimation $9.13 billion

• Operating income $1.10 billion, -17% y/y, estimation $1.35 billion

• Adjusted operating margin 12.8%, estimation 14.5%

• Operating margin 12.8%, estimation 14.4%

• North America operating margin +18%, estimation +19.5%

• International operating margin 13.3%, estimation 15.2%

• Channel improvement operating margin 51.7%, estimation 43.6%

• Average ticket +2%, estimation +2.41%

• North American average ticket price +4%, estimation +4.15%

• International avg. ticket -3%, estimation +0.1%

• North America net fresh stores 134, estimation 144.33

• International net fresh store openings 230, estimation 429.23

• Comparable transactions -6%, estimation -0.27%

• North America comparative transactions -7%, estimation -1.86%

• International comparative transactions -3%, estimation 11.37%

Goldman analyses Eric Mihelc and Scott Feiler told clients, “Expectations were for a clear sales miss and a modest EPS miss, but both came worth than the lowered bar.”

They added, “The miss was across geography and was as bad, if not worth, than worst fears.”

Other Wall Street analyses shared the same planet and doom about the coffee chain:

Deutsche Bank analyst Lauren Silberman cuts Starbucks to hold from buy

• Says the ‘challenging’ results were a sign ‘headwinds are more permanent and persistent than we expect, and we have limited visibility into the package and magnitude of a recovery’

• Had thought combined sales deceleration in the US was more transitory and isolated to a circumstantial cohort

• However, with the decline in 2Q traffic and what seems to be limited improvement from Lavender and Spicy Refreshers, Silberman sees it being hard to “underwrite a meansful reaction,” which is key to the bull case

William Blair, Sharon Zackfia (cuts to marketplace performance from outside)

• After healthy request over the past 3 years, Zackfia says the ‘tide has turned quickly,’ with Starbucks posting the weekend traffic performance outside the pandemic or large recession

• China now “looks more fragile,” with comparative sales down 11%, and even Starbucks Rewards members “take a uncommon dip,” she adds

Jefferies, Andy Barish (hold)

• There was a “notable” miss on US and global comparative sales as well as EPS, and Barish says there is “no easy fix in hand to reacterate SSS near-term”

• Notes that global comparative sales was “similarly weak,” with traffic and comparative transactions both declining; China’s comparative sales miss and mediate East flexibility more than offset affirmative comps seen in Japan, APAC and Latin America

• PT cut to $84 from $94

Citi, Jon Tower (neutral)

• Starbucks is “putting quite a few ears in the water to effort and paddle” its way back to a unchangeable compact sales outside that investors would be able to include to underwrite

• However, Tower express concern that there is not adequate ‘coxswain keeping earsmen working in union/with accountability’; adds that it ignores the ‘true leak in the bottom of the boat,’ flagging broad consumer pushback to competitive transaction growth and the value equality

• Notes China store margins are inactive in the double digit and the section is profitable despite top-line declines

• PT cut to $85 from $95

Cowen, Andrew Charles (hold)

• "We believe 2024 guide has been exposed as we model 0% NA comps & 3% EPS growth, the advanced end of the range"

• Expects shares to be in a ‘holding pattern’ as Starbucks restores credibility while competition and tough macroeconomic conditions present headswinds

• PT cut to $85 from $100

Bloomberg Intelligence, Michael Halen and Jennifer Bartashus

• "Starbucks slashed fiscal 2024 alone-store sales, returnue and EPS guide and cards a cogent plan to boost demand"

• "We believe respective initiatives, including targeting overnight sales, dozens of fresh products and a four-week mobile-app upgrade cycle are overkill — a distribution improbable to boost traffic"

On Tuesday, a similary communicative occured at McDonald's erstwhile the burger chain reported lower-than-expected quarterly sales growth.

Notably, working-poor consumers are pulling back spending in a period of stagflation (read here & here).