[Note: Starbucks’ fiscal year 2024 ended in September]

Starbucks Posts Mixed Earnings as Stock Surges Despite Headwinds

Starbucks’ stock (NASDAQ: SBUX) has risen 21% year-to-date, trading at around $111 per share as of February 4. The company’s first-quarter earnings under CEO Brian Niccol hinted at a positive start, even as challenges in comparable sales and operating margins persist. The ‘Back to Starbucks’ strategy appears to be gaining traction, with rising loyalty program memberships and a reduction in discount-driven sales. Compared to the S&P 500’s 3% growth over the same timeframe, Starbucks’ stock has outperformed the broader market. In contrast, McDonald’s stock (NYSE: MCD) has remained unchanged this year. Although SBUX has seen a stock price increase, short-term setbacks may be on the horizon due to rising coffee prices and ongoing issues in the Chinese market.

For the fiscal first quarter, Starbucks reported net sales of $9.4 billion, consistent with the previous year. However, net income fell to $780.8 million, or $0.69 per share, down from $1.02 billion, or $0.90 per share, a year earlier. Same-store sales dropped 4%, influenced by a 6% decline in store traffic, marking four consecutive quarters of decline in this area. In the U.S., same-store sales also fell 4%, accompanied by an 8% decrease in traffic. In China, Starbucks’ second-largest market, same-store sales declined by 6%, primarily due to a 4% drop in the average ticket size. Overall, SBUX’s Q1 results underscore the urgency for strategic changes, especially internationally, as rising operating expenses led to a 390 basis point margin compression to 11.9%, well below the ten-year average of 15.1%. Key contributors to these costs included investments in employee wages and promotional efforts.

The past four years have seen SBUX stock fluctuate significantly, with annual returns averaging less volatility than the S&P 500. The returns were marked at 11% in 2021, -13% in 2022, -1% in 2023, and -2% in 2024. In contrast, the Trefis High Quality (HQ) Portfolio, featuring 30 carefully selected stocks, has displayed less volatility and significantly outperformed the S&P 500 during this period. These HQ stocks have provided better returns with lower risk, resulting in a smoother investment experience.

Looking ahead, we project Starbucks’ revenues to reach $37.9 billion for fiscal year 2025, indicating a 5% year-over-year growth. Regarding earnings, we expect the earnings per share to be $3.05. With these updates to our revenue and earnings forecasts, we have adjusted Starbucks’ valuation to $100 per share, which reflects an expected EPS of $3.05 and a P/E multiple of 32.9x for FY 2025—almost 8% lower than the current market price.

Comparison with peers illustrates how SBUX stacks up in important financial metrics.

[1] Returns as of 2/5/2025
[2] Cumulative total returns since the end of 2016

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