Starbucks (stocks/sbux”>SEX) surprised their investors with preliminary fourth-quarter results and sent share prices down more than 5% in premarket trading on Wednesday. The coffee behemoth announced a 3% year-on-year decline in revenue to $9.1 billion and adjusted earnings per share therefore fell 24% to $0.80.
Weakness was evident in key markets. For example, comparable sales in the United States fell 6% due to a whopping 10% drop in in-person traffic despite a 4% growth in average receipt size. Advertising measures, such as the “coffee and croissant combo menu for $5,” were not effective in attracting consumer interest. Additionally, Starbucks China saw a sharp 14% drop in comparable sales. This decrease was due to drops in both foot traffic and average doorway size. These decreases were due to two main factors. First, the company faced more challenging competition. Second, China's macroeconomic environment has weakened.
The corporation also broke analyst expectations when it canceled fiscal year-end 2025 guidance, which was due to the CEO transition to Brian Niccol. Niccol, who managed to reinvent Chipotle, is the one who took over Starbucks. Investors have driven the stock to 10% growth over the past six months, showing a high level of confidence in its leadership. The quarterly reports, however, show the impossibility of a quick recovery.
Starbucks will launch its officer Q4 and full-year 2024 results on October 30. Analysts will focus on several factors. However, they are especially interested in Niccol's plans to revitalize the brand.
Starbucks Stock Chart Analysis
SBUX/USD 15-minute chart
Looking at the 15-minute chart of Starbucks (SBUX), it is obvious that the stock had been very volatile for several days.
The stock has maintained stable trading between $95 and $97, with a high of $97.20 on this day. Therefore, we can conclude that this period presents a slight upward trend. However, this morning we saw an instant bearish reaction that caused an intraday drop to $93.69 before quickly recovering.
The drastic decline is likely due to negative reaction to Starbucks' first preliminary fourth-quarter results. These results did not meet market expectations. Investors appear concerned about two key issues. First, the 24% cut in adjusted earnings per share alarmed the market. Second, the company's decision not to provide its full-year 2025 forecast has created uncertainty. This gap in guidance comes as Starbucks transitions to its new CEO, Brian Niccol.
In early trading, the stock fell sharply, which is also related to the pre-market drop of up to 5%. Although there was a sharp initial drop, the stock is now recovering to around $96, despite its difficulty in breaking above the $97 level it had at the start of the week.
If you're confident in the company's long-term prospects, consider buying on dips, but if concerns persist, waiting for clearer guidance could be the smarter move.
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