There has already been a lot of chatter over Starbucks’ (NASDAQ: SBUX) disappointing fiscal second quarter results, and the evidence is in the stock price, which has fallen 17% since the company reported its results.

Before you get too bearish on the stock, though, let’s take a look at what really happened last quarter and what it means for the business.

Tough earnings

Business was rough for Starbucks in the quarter ended Mar. 31, a marked shift from the growth reported the previous quarter. Consolidated North American net revenue was flat year over year, even though the total store count increased 3% to 18,065 locations. Meanwhile, comparable-store sales, or comps, fell 3% with transactions down 7%.

International results were even weaker with comps declining 6% and total revenue falling 5% year over year. Starbucks saw some of its worst results in China, the company’s second largest market, as comps fell 11%.

And on the bottom line, operating margin contracted 240 basis points to 12.8%, while earnings per share (EPS) decreased 14% to $0.68. Starbucks’ results fell short of Wall Street’s expectations across the board.

A valuation trap?

For the key U.S. and Chinese markets, management is now forecasting flat or down comps for the full fiscal year. EPS should come in flat or up a low-single-digit percentage.

Based on that outlook, Starbucks stock is trading at about 20.7 times forward earnings — well below the five-year average forward price-to-earnings (P/E) ratio of close to 30. This is the one thing that might entice buyers: The stock is cheap relative to historical levels.

But there’s still a catch here: the strength of the consumer.

The consumer problem

Multiple companies, including big names like McDonald’s, have seen their same-store sales struggle. This implies the overall strength and/or willingness of the consumer to dine out is a widespread problem.

McDonald’s is a direct competitor to Starbucks with coffee, and its CFO Ian Borden summed it up best:

Clearly everybody’s fighting for fewer consumers or consumers that are certainly visiting less frequently, and we’ve got to make sure we’ve got that street-fighting mentality to win, regardless of the context around us.

Commentary like this doesn’t paint a pretty picture since the weak consumer spending isn’t in Starbucks’ control. The U.S. Bureau of Labor Statistics even reported the cost of fast-food restaurants is increasing faster than the cost of eating at home, creating less incentive to go out somewhere to a place like Starbucks.

Image source: Getty Images.

Former CEO Howard Schultz recently gave his two cents on the issue, saying the store experience needs to be improved, particularly in the United States. While that may indeed be the case, it doesn’t address the reality consumers might be facing with the pinch of inflation on their pocketbooks.

For now, I view Starbucks stock as a hard pass. The coffee chain has real headwinds to overcome, and the share price isn’t likely to do much until those problems are solved.

Pressured consumers are not going to be as inclined to spend that extra money for coffee or other products in this environment. This might not be a problem Starbucks can deal with, short of lowering its prices or driving promotions, which would only hurt its earnings outlook. Despite the low price point, investors should sit on the sidelines and keep Starbucks on their watch list for now.

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David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.