Why Has Starbucks’ Stock Price Stagnated In The Year So Far?

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Starbucks’ stock price has stagnated around the mid-50s since the beginning of the year, despite showcasing growth in every quarter in revenues and comparable sales.

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In the following note, we discuss the key reasons behind Starbucks stagnating stock price:

  • Missing The Consensus Estimates
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For two quarters, Starbucks has been missing the consensus estimate for revenues slightly, while meeting it for EPS. This has led to an over-reaction from market participants, who chose to overlook Starbucks’ significant top-line growth, undeterred by the industry-wide traffic deceleration and macroeconomic changes that other players in the industry have been suffering from.

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  • Slowdown In Comps

Historically, Starbucks’ levels of comparable store sales growth have been at or above 5%. In a shocking move for the investors, the June quarter saw this metric coming down to 4%, impressive when compared to other players in the quick service restaurant marketplace, but very far from Starbucks’ recent 8%-9% levels. The fall in the metric was primarily seen in the Americas. Furthermore, the CAP (China and Asia Pacific) region’s comparable sales were also seen at a lukewarm 3%. China is one of the major growth contributors to the company. The company is betting on its success in China to push its valuation higher. In the face of a slowdown in comps, investors reacted negatively, resulting in a fall in its stock price.

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  • Changes To The Loyalty Program

Starbucks recently changed its loyalty program from one based on frequency to the amount spent. The earlier program gave perks for frequent visits, while the new one gives loyal customers free drinks depending on how much they spend. Starbucks made the change to eliminate in-store operating issues and order splitting, to increase the speed of service and reduce line attrition. This likely discouraged customers, leading to a slower turnaround at the cash register. However, the company remains confident about this shift, expecting it to be a pivotal point for its business.

  • Rising Coffee Bean Prices

Robusta and arabica coffee bean prices are at an 18-month high due to the arid weather conditions in Brazil and Vietnam and a global supply shortage. The higher coffee prices may make a dent in consumers’ coffee obsession, causing people to move to cheaper alternates. This doesn’t bode well for a giant like Starbucks, which is highly dependent on coffee sales for revenue growth.

Have more questions on Starbucks? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Starbucks

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