Starbucks Earnings: Weak Same Store Sales Will Hurt Starbucks Corporation (SBUX) Stock

  • Starbucks Corporation CEO Howard Schultz categorized the Q3 drop in same-store-sales as an anomaly.
  • If it was, then Q4 same-store sales for Q4 should come in at a minimum of 5% higher.
  • If not, it could put further downward pressure on Starbucks stock price.
Starbucks Earnings Weak Same Store Sales Will Hurt Starbucks Corporation Stock
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Starbucks Corporation (NSDQ:SBUX), the coffee chain with more than 24,000 stores around the world spread across 74 countries, has been under pressure to improve its sagging same-store sales numbers. After watching its same-store sales figures grow in excess of 6% for the last three years, Starbucks is now expecting mid-single digit growth for fiscal 2016.

Were Q3 Comps an Anomaly?

Same-store sales growth in the first three quarters read 9%, 6% and 4% year-on-year, respectively, and the downward trend is what concerns investors the most. The slowdown was clearly not what Starbucks had expected for the year, and the company revised its guidance slightly downwards. It is now expecting full year comps to come in at mid-single digit growth instead of the previously expected growth of above mid-single digit.

“On today's call, we will demonstrate with clarity and specificity why our U.S. comps in Q3 were an anomaly, and that we have clear line of sight to returning our business to historic levels of comp growth, which has been at or above 5% for the past 25 consecutive quarters”.- Howard Schultz during the third quarter earnings call.

U.S. Comps for Q3 came in at 4%, the worst number Starbucks has reported in the last five years. CEO Howard Schultz called that an anomaly while discussing third quarter results. But to prove that to be an outlier, Starbucks has to get its numbers back to old levels when the company reports fourth-quarter results on November 3, 2016 after the markets close.

Also read: 3 Reasons Why Starbucks stock is a solid buy?

This will be the single most important metric to watch during the fourth quarter results, and if Starbucks reports anything less than 5% comparable store sales in the U.S., it will definitely raise questions over a further slowdown, putting enormous downward pressure on Starbucks stock. If it goes above 5% then Q3 can, indeed, be thought of as an anomaly, thereby relieving the pressure on the stock, which has already lost one tenth of its value since the start of this year.

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Aggressive Store Growth In APAC May Be Thwarted By Declining Comps At Home

On the sales front, Starbucks is not a company you need to start worrying about, as the company has plenty of room to keep increasing its store count around the world. In the first nine months of the current fiscal, the company added 1,352 stores, nearly 200 stores more than it did by this time last year. Revenues in the first nine months expanded by 10% to $15.604 billion from $14.247 billion during the prior period.

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Our newest China stores continue to deliver record-breaking volume and profit, and we remain committed, and we're on plan to increase our store count to over 3,400 in China and to over 10,000 in CAP overall by the end of fiscal 2019.” - Q3 Earnings call

Starbucks is expecting to hit 1,900 net new stores openings this year, 100 more than they did last year. Most of the store openings - approximately 900 - will be in the APAC region, followed by North America with 740 stores and EMEA with 250 stores. Clearly, growing its top line will not be the issue for the company as they have a huge runway for expansion, but if footfalls start dropping, especially in the United States, it could throw a huge spanner in the works, as it will force the company to concentrate more on its home market.

Also see: The latest top technology stock picks from Amigobulls.

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Comments on this article and SBUX stock

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gravesande13
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It should be considered that Starbucks customer service, in all, has just went to hell. I'm sure this has to be contributing to the stock dropping. I am a old school Starbucks employee, and I am apaughed at the employees attitudes, their lack of interest in their VIP customers as well as ALL CUSTOMERS. No matter what State I go, or if is my frequent store, the customer service is HORRIBLE. I would NOW compare it to a McDonald's. On that level. With Starbucks charging such a high price for drinks, they should absolutely uphold the best service, and make sure you're not getting watery whip cream, dead shots, and attitudes when ask to fix it. I ABSOLUTELY think the stock is going down, what else would you expect. I really think, in my opinion, Starbucks needs to do a retraining of employees and get their reputation back up to par!!! Also get the managers to follow thru with their employees to make sure they are respectful, speak to customers as human beings, not their homes. It's really sad that this has happend to such a wonderful place to go RELAX with a NICE cup of coffee. Has anyone thought this could be reason??? I used to be a 3xs a day customer, NOW, 1 time a day, and if I really don't feel like dealing with the rudeness, and drinks that are NOT WORTH the price, I will go to a Target or a franchised out Starbucks. Corporate Starbucks needs a overhaul!!!!!!!!!!
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ShudeepC
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Thanks for sharing, gravesande13. If it's that bad I think people should know about it.
Do share this awesome post