Starbucks (NASDAQ:SBUX) shares fell hard overnight after earnings missed estimates and the company cut its forecast for the year.
Net income of $772.4 million, or 68 cents per share, came in down from a year ago. Meanwhile, sales of $8.56 billion fell 1.8%. Management blamed a “complex operating environment.”
Starbucks opened May 1 at about $76 per share and currently has a market capitalization of around $84 billion. Shares closed on April 30 at more than $88 per share. Wedbush recently cut its price target on SBUX stock to $81 per share, and other analysts joined in.
SBUX Stock: Hard Times at the Coffee Shop
CEO Laxman Narasimhan has had a tough time since replacing founder Howard Schultz as CEO in April 2023. SBUX stock is down more than 30% over the past one year.
Narasimhan blamed morning commuters who are too impatient to wait for their coffee. Same store revenue fell by 3% in North America and 11% in China.
Starbucks is facing increasing competition in all of its markets. Grab-and-go chains like Dutch Brothers (NYSE:BROS) are taking share in the U.S. with a wider variety of drinks. Young people are also flocking to “boba shops” that sell tea drinks and coffee, along with a wider variety of flavors and tapioca pearls. In Europe, Starbucks also faces Coca-Cola (NYSE:KO), which owns Costa Coffee.
In his second return as CEO, Schultz ditched the lounges and WiFi havens on which Starbucks made its name. Instead, he built tiny shops with drive-up windows. Narasimhan has yet to make major changes, except for making peace with union activists that Schultz fought hard.
Narasimhan said Starbucks is finally getting on the boba bandwagon with a drink called “Pearls.” The company is continuing on the automation path Schultz set it on, with digital menu boards and an improved loyalty program. The company will also offer overnight service in some locations and expand its delivery business.
What Happens Next?
Narasimhan has a limited time to get things right for the company. Starbucks is now racing to catch up with changing tastes rather than leading them.
On the date of publication, Dana Blankenhorn did not hold (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.
