Will Starbucks Q4 FY2024 Earnings Get a Caffeine Shot?

TradingKey - For coffee lovers everywhere, Starbucks Corp (NASDAQ: SBUX) used to be the leader in the coffee industry. That was down to its skilled baristas and a place for people to relax and work. Also known as the “third place”, Starbucks created a buzz around its coffee shops.

However, in recent years, Starbucks has faced problems with its business. From a lack of innovation in their offerings to increasing competition in key markets like China, the coffee chain has seen its business (and share price) suffer.

Recently, Starbucks appointed ex-CEO of Chipotle Mexican Grill Inc (NYSE” CMG) – a fast casual Mexican eatery – as its new CEO. Brian Niccol stepped into the role of CEO at Starbucks in early September and takes over a business that is struggling.

The company reported its preliminary Q4 FY2024 (for the 13 weeks ended 29 September 2024) results last week and CEO Brian Niccol stated he will share more details on a turnaround plan for the business when Starbucks reports its full Q4 FY2024 earnings on Wednesday (30 October) after the market closes. 

So, will Starbucks investors get a buzz from its latest results? Not likely but a more detailed turnaround plan from CEO Niccol could lift its stock price.

Provisional results show weak sales, suspends 2025 outlook

Last Tuesday (22 October), Starbucks revealed its preliminary Q4 FY2024 results that covered the basic metrics. Unfortunately for shareholders, the slowdown in its sales continued as the company’s preliminary sales fell 3% year-on-year to US$9.1 billion for the quarter.

For investors in the retail or consumer industry, many investors look at a chain’s “same-store sales” as a metric of how efficient the company is at growing its sales. 

In the case of Starbucks, even though it continues to open new stores, this efficiency is lacking. For the third consecutive quarter, Starbucks’ same-store sales fell and its same-store sales decline of 7% for the latest quarter was its steepest fall since the start of the Covid-19 pandemic.

This weakness was most prominent in its second-largest market, China, where same-store sales plunged 14% year-on-year. That’s likely down to weak consumer sentiment in China but there’s also the fiercely-competitive landscape in the country, where vendors like Luckin Coffee are grabbing market share from Starbucks.

Even in North America, its home market, same-store sales declined 6% year-on-year. This was driven by a 10% fall in comparable transactions but was partially offset by a 4% rise in average ticket.

More importantly for investors, the company said it would be suspending its fiscal 2025 (FY2025) outlook given the recent CEO transition and the state of the business.

Dividend hike for shareholders

There was some, relatively, good news in the report in that Starbucks raised its dividend from US$0.57 to US$0.61 per share, representing a 7% increase.

Starbucks stated that this increase “demonstrates the company’s confidence in the long-term growth of the business”.

Given CEO Niccol only started his role in September, he has been busy engaging and listening to feedback from its partners and customers. He said that he plans to reveal more on his “Back to Starbucks” plan on the earnings call on 30 October when the company releases its full earnings.

Investors will be watching closely how CEO Niccol – who oversaw strong growth and returns for Chipotle shareholders – formulates a plan for turning around the fortunes of Starbucks. The company ousted its previous CEO, Laxman Narasimhan, after less than a year in the role and recruited Niccol to take his place. 

On the back of the news that Niccol was taking over, Starbucks shares popped 25%. However, so far in 2024, Starbucks shares are only up 3.9% and trail the S&P 500 Index’s year-to-date return of 22.5%.