After today, Starbucks Corporation (NASDAQ:SBUX) is going to run out of excuses for its same-store sales troubles and — by extension — an underperforming Starbucks stock price.
The chain blamed the U.S. election for a sustained period of below-average sales saying that the uncertainty and “noise” generated by the political contest have made it tough for retailers to maintain momentum.
Usually retailers use the weather as their favorite eyebrow-raising excuse for disappointing revenue, but maybe there is something to it. That said, the line from political anxiety to coffee consumption does look a bit attenuated.
Just remember that back over the summer, SBUX also blamed political and social unrest in both the U.S. and abroad for disappointing results.
Who knew SBUX stock carried so much geopolitical risk?
Starbuck’s caution extends through year-end and beyond, so it’s hedging its bets on the election outcome, but it better break out of the funk soon. Investors are rightly worried that the struggle with same-store sales could become a permanent condition.
After all, SBUX has now missed its U.S. sales target in four consecutive quarters. No matter how promising the China strategy is in the longer run, SBUX can’t afford weakness in its target market.
U.S. same-store sales in the quarter rose 4%, compared with analysts’ projections for a 4.8% increase. CEO Howard Schultz urged analysts to look at Starbucks’ long-term strategy rather than quarterly sales fluctuations.
True, China is where the future lies and SBUX’s future there is bright. Same-store sales rose a whopping 6% in the most recent quarter. Indeed, China is such a green field that Starbucks will more than double the number of stores there to 5,000 over the next half-decade.
But the U.S. still has to pull its weight, and it’s not. U.S. same-store sales in the quarter rose just 4%. That was well below the 5% growth rate investors have come to expect.
Be Patient with SBUX Stock
The company is right to urge investors to concentrate on its long-term strategy. The China opportunity is no joke. But asking the market to ignore quarter-to-quarter noise is pointless. Shares are going to bounce around. It’s up to investors to remain calm.
Click to Enlarge As silly as it sounds to blame the election and other geopolitical worries on Starbucks’ sales issues, it’s not outside the realm of possibility. We do know that the entire restaurant industry is in a funk right now. Hiring and wages are up, unemployment is down, gas is cheap and consumer confidence is healthy.
There must be something other than cheap prices for food at home weighing on the sector.
Given history, let’s give SBUX the benefit of the doubt that this soft patch will eventually run its course. On that basis, you’ve got to like the name for a variety of reasons — from global expansion to capital investments to buybacks and dividends.
Here’s something analysts at Markit said before Starbucks lifted its dividend:
“SBUX is well positioned to benefit from its premium pricing and scale advantages, geographic market and portfolio expansion (especially China/APAC) and investments in mobile, site-developments and employees. Additionally, the company is under-levered compared to its peers (net debt to EBITDA at 0.17x vs peers’ 1.43x) and could raise extra debt easily. Management has repurchased twice as much stock in the last twelve months as in this period one year previously, with $1.94bn vs $914m. Given the board’s commitment to increase shareholder return, we anticipate double-digit dividend growth momentum to roll on.”
Shares are down 9% for the year-to-date and are starting to look frisky. The Starbucks stock price just broke resistance at its 50-day moving average for the first time since August.
Perhaps the picture won’t improve in the aftermath of the election, but short-term thinking is not the same thing as investing. With a highly credible strategy, SBUX looks poised to deliver market-beating returns over the long haul.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
