Starbucks doesn’t look like much of a value stock (yet).
Starbucks (SBUX 4.12%) stock gained 3.6% through 10:05 a.m. ET Wednesday morning, despite the company reporting only mixed earnings (an earnings meet and a sales miss) last night.
Wall Street analysts had forecast the restaurant chain would earn $0.93 per share on better than $9.2 billion in sales for fiscal Q3 2024. Starbucks nailed the earnings number, but its sales fell a bit short at only $9.1 billion.
Starbucks Q3 earnings
Sales declined 1% year over year, hurt by a 5% decline in “comparable transactions” (which could mean less foot traffic, fewer customer orders placed per visit, or both), which was offset by a 2% increase in the size of orders when customers did order (which may indicate either bigger orders placed or higher prices being charged for the same cup of coffee).
Same-store sales actually fell even more than total sales, and more than analysts predicted, at a 3% decline. The overall sales decline was only 1%, not 3%, because Starbucks opened 526 new restaurants in the quarter, and those new restaurants contributed their own sales to the total.
Where are sales falling most steeply? With all the focus on U.S. inflation in the news, you may be surprised to learn that same-store sales fell only 2% in the U.S. Starbucks struggled more internationally, where same-store sales fell 7% — and especially in China, where they plummeted 14%.
Is Starbucks stock a buy?
Combined with a 60-basis-point contraction in operating profit margins (to 16.7%), this drop in sales caused Starbucks’ earnings to fall even faster than sales did — down 6% year over year. Despite all this, CEO Laxman Narasimhan insisted that he’s “driving operational improvements” (emphasis added) and predicted that both sales and earnings for the full year will be no worse than last year’s, with the potential for percentage improvements in the low single digits.
What does this mean for investors? Basically, it means Starbucks is a 22 P/E stock showing either no growth or very little. Despite the generous 3% dividend, it doesn’t look like much of a buy to me.
Rich Smith 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.
