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Starbucks (SBUX) Stock Down 21% in a Year: What's Hurting It?

Starbucks Corporation SBUX has been witnessing strong headwinds from a challenging macroeconomic environment, a decline in consumer confidence and uncertainty in international markets.

The company’s shares have lost 20.9% in the past year compared with the industry’s 6.6% decline. Let’s look at SBUX’s earnings estimate revisions to get a clear picture of what analysts are thinking about the company. Earnings estimates for fiscal 2024 and 2025 have been revised downward by 11.1% and 13.1%, respectively, in the past 60 days.

Let’s discuss the factors that are likely to affect this Zacks Rank #4 (Sell) company’s growth potential.

Primary Concerns

Starbucks is grappling with the aftermath of a slower-than-anticipated recovery in China. Also, it is facing intense competition from value-focused players in the market. In second-quarter fiscal 2024, global comparable store sales declined 4% year over year. The downside was due to a 6% decrease in comparable transactions.

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Zacks Investment Research

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During the quarter, North America and International comps declined 3% and 6%, respectively, year over year. In North America, consumer caution and deteriorating economic conditions led to reduced customer traffic, particularly among occasional visitors. Additionally, severe weather in the United States negatively impacted comparable sales by nearly 3% during the fiscal second quarter. Economic volatility in the Middle East and market headwinds in Indonesia and Malaysia further exacerbated the challenges Starbucks faces globally.

These factors have led the company to adjust its growth expectations. It now anticipates 2024 global and U.S. comparable sales growth to range from a low-single-digit decline to flat, a notable reduction from the previous expectation of 4-6% growth. Specifically, the company projects a 12% decline in China’s comparable sales from the prior-year level.

Operational inefficiencies, particularly within the Mobile Order & Pay (MOP) system, have contributed to SBUX's challenges in the fiscal second quarter. Starbucks reported a mid-teens percentage of order incompletion due to long wait times and product availability issues during peak morning demand. The company has recognized that many of these issues are within its control and laid out a comprehensive strategy to address them.

Starbucks’ adjusted margin witnessed a decline in second-quarter fiscal 2024. On a non-GAAP basis, operating margin of 12.8% contracted 150 basis points from the prior-year quarter’s levels. The decrease was mainly caused by several factors, including increased costs due to investments in employee wages and benefits, intensified promotional efforts and lapping the gain on the sale of Seattle's Best Coffee brand. Higher general and administrative expenses, particularly related to supporting Starbucks’ reinvention initiatives, added to the woes.

The company is taking swift action to address its challenges and capitalize on its long-term opportunities. By enhancing its operational execution, launching new products and demonstrating value to customers, Starbucks aims to return to sustainable growth and achieve its long-term objectives.

Stocks to Consider

Some better-ranked stocks in the Zacks Retail-Wholesale sector are:

Wingstop Inc. WING sports a Zacks Rank #1 (Strong Buy) at present. It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 115.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.

Brinker International, Inc. EAT carries a Zacks Rank #2 (Buy) at present. It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 86.3% in the past year.

The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 41.3% growth, respectively, from the year-earlier actuals.

El Pollo Loco Holdings, Inc. LOCO currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 6% in the past year.

The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from the prior-year figures.

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Starbucks Corporation (SBUX) : Free Stock Analysis Report

Brinker International, Inc. (EAT) : Free Stock Analysis Report

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Wingstop Inc. (WING) : Free Stock Analysis Report

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