[Note: Starbucks’ fiscal year 2024 ended in September]
Starbucks stock (NASDAQ: SBUX) has experienced a 21% increase in stock price year-to-date, reaching approximately $111 per share (Feb 4). Starbucks’ first-quarter earnings marked a promising start under the leadership of CEO Brian Niccol, despite ongoing challenges in key metrics such as comparable sales and operating margins. The company’s ’Back to Starbucks’ strategy shows early promise, with growing loyalty program membership and fewer discount-driven sales. The company’s stock has outperformed broader market indices, such as the S&P 500, which has grown 3% over the same period. In comparison, SBUX’s peer McDonald’s stock (NYSE: MCD) is flat so far this year. Although SBUX stock has experienced growth, we expect potential short-term declines due to significant challenges ahead, including increasing coffee prices and ongoing difficulties in the Chinese market.
In the fiscal first quarter, Starbucks reported net sales of $9.4 billion, unchanged from the previous year. Net income attributable to the company declined to $780.8 million, or $0.69 per share, from $1.02 billion, or $0.90 per share, in the prior year. Furthermore, same-store sales decreased 4%, driven by a 6% decline in store traffic, marking the company’s fourth consecutive quarter of same-store sales decline. In the U.S., same-store sales fell 4%, with an 8% decline in traffic. In China, the company’s second-largest market, same-store sales decreased 6%, fueled by a 4% decline in average ticket size. Overall SBUX’s Q1 results highlight the need for strategic adjustments, especially internationally, as operating expenses surged, compressing margins by 390 basis points to 11.9%, which is well below the ten-year average of 15.1%. Key cost drivers included investments in employee wages and promotional activities. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
The increase in SBUX stock over the last 4-year period has been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were 11% in 2021, -13% in 2022, -1% in 2023, and -2% in 2024. The Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
We forecast Starbucks’ Revenues to be $37.9 billion for the fiscal year 2025, up 5% y-o-y. Looking at the bottom line, we now forecast the earnings per share to come in at $3.05. Given the changes to our revenues and EPS forecast, we have revised our Starbucks’ Valuation to $100 per share, based on a $3.05 expected EPS and a 32.9x P/E multiple for the fiscal year 2025 – almost 8% lower than the current market price.
It is helpful to see how its peers stack up. SBUX Peers shows how Starbucks’ stock compares against peers in terms of metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
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