Starbucks Stock Warning: Is It Time to Dump SBUX Out of Your Cup?

Stocks to sell

During these challenging times of persistent inflation and high food prices, executives need to be responsive to consumers’ needs. Unfortunately, Starbucks’s (NASADQ:SBUX) management seems to be missing the mark in 2024. After reviewing the facts, I’m categorizing Starbucks stock as “cheap for a reason.”

The situation with Starbucks has gotten so bad that former CEO Howard Schultz admitted there are “no quick fixes” for the company. Schultz also hinted that Starbucks is over-focusing on being “transactional” rather than “experiential.”

To me, it sounds like Starbucks has lost its way. Suggesting that the company is overly “transactional” is, I believe, a polite way to say that Starbucks is too greedy and is overcharging its customers. That’s problematic, and perhaps even insensitive to the consumers’ needs, amid a challenging economic landscape.

Starbucks’s ‘Stunning’ Quarterly Miss

Before delving into the numbers, I’ll start off with a couple of quotes about Starbucks’s second-quarter fiscal 2024 results. First, William Blair analysts called Starbucks’s quarterly performance a “stunning across the board miss on all key metrics.”

Second, Vital Knowledge analyst Adam Crisafulli declared that Starbucks “reported what’s perhaps the worst set of results of any large company so far” for the quarter. Were the results really that bad, though?

Indeed, they were. Analysts expected to see quarterly net revenue of $9.1 billion, but Starbucks only generated $8.6 billion. That result represents a 1.8% year-over-year decline.

The company’s earnings of 68 cents per share indicated a 13.9% year-over-year decrease. Plus, this result fell notably short of Wall Street’s call for quarterly earnings of 80 cents per share.

Starbucks’s Q2-FY2024 comparable-store sales fell 4% globally, and 11% in China in particular. With all of that in mind, Starbucks CEO Laxman Narasimhan admitted, “In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead.”

Starbucks’s Management Misses the Obvious Problem

By citing the “highly challenged environment,” Narasimhan seemed to hit the nail on the head. Inflation has been frustratingly persistent over the past few years. As consumers choose necessities over nonessential items, Starbucks should respond with lower product prices.

Yet, Starbucks’s management refuses to budge on prices. The company’s chief financial officer, Rachel Ruggeri recently confirmed that Starbucks has no plans to reduce the prices of its products.

Moreover, Ruggeri told Yahoo! Finance that the decline in Starbucks’s revenue was due to “occasional customers” pulling back on spending. To this, I’d counter that Starbucks’ quarterly results were so bad that “occasional customers” couldn’t possibly be to blame.

Meanwhile, Bloomberg published a report about how Narasimhan thinks that faster service and trendy “boba” beverages can fix Starbucks’s problems.

In light of this, I can see why Schultz felt the need to address Starbucks’ management directly and publicly. Whether they’ll actually listen and change, their strategy is another matter entirely.

Don’t Take a Sip of Starbucks Stock

Starbucks’s management may think that reducing wait times and leaning into the “boba” trend will solve the company’s deficiencies. However, a more responsive turnaround strategy would involve cutting Starbucks’ coffee prices.

Maybe you disagree with me on that. However, I encourage you to consider Starbucks’ quarterly results, and especially the comparable-store sales decline. Then, even though the share price is down, you’ll likely be convinced to avoid Starbucks stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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