Investors beware. Starbucks (NASDAQ:SBUX) is likely has further to fall before it hits bottom. Starbucks stock is down 25% over the last 12 months, including an 18% drop so far this year.
The share price has barely moved since 2019. Value investors may consider buying Starbucks stock at its 52-week low. It’s a mistake because shares are likely to worsen before improving.
Compounding Problems
Starbucks most recent earnings print was an ugly one that sent the company’s stock down 12% in a day. The results showed compounding problems that led the coffee chain to lower its forward guidance.
Seattle-based Starbucks reported EPS of 68 cents, which missed the consensus forecast of 79 cents among analysts. Revenue also missed the target, coming in at $8.56 billion versus estimates of $9.13 billion.
Global sales were down 2% from a year ago, while same-store sales fell 4% as traffic at Starbucks cafes declined 6% in the quarter. Analysts were anticipating same-store sales growth of 1%.
Worse, Starbucks reported declining same-store sales and customer traffic across all regions and markets. It isn’t one isolated area that is a trouble spot. Sales are falling everywhere for the company.
Starbucks Stock Goes from Bad to Worse
In the U.S., customer foot traffic at Starbucks decreased 7% year-over-year. In China, Starbucks’ second-largest market, same-store sales plunged 11% from a year earlier. The bad news was spread far and wide.
Management blamed the poor results on consumers pulling back on discretionary spending as prices rise to counter inflation, as well as on slowing economies such as China.
The look ahead at Starbucks wasn’t any better. The company lowered its forecast for 2024 earnings and revenue, saying that its outlets are likely to continue underperforming for several more quarters as the current slowdown shows no signs of reversing.
Starbucks now expects revenue growth in the low single digits this year, down from its prior forecast of 10% growth. Profit growth is forecast to be flat compared to a previous forecast of 15% to 20% growth.
Internal Strife
In an unusual development that media and analysts took to be a sign of internal strife at Starbucks, former longtime CEO Howard Schultz publicly rebuked the current management team after the company’s disastrous first-quarter earnings.
Schultz, who ran Starbucks on-and-off for a total of 25 years, took to social media to state that “The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores.”
While the company didn’t respond publicly to Schultz’s criticism, the incident generated a lot of media headlines. Beyond Schultz’s personal views, Starbucks is dealing with another internal problem.
That would be ongoing efforts by staff to unionize. At last count, workers have voted to unionize at more than 370 Starbucks stores in the U.S. So far, none of those stores has reached a labor agreement with the company.
Labor Unrest
It was reported a few months back Starbucks has restarted talks with Workers United, the union that is organizing employees at its U.S. stores, and said that they are willing to negotiate labor contracts.
That approach is a reversal for Starbucks, which has fought unionization drives since workers at a Starbucks location in Buffalo, New York voted to form a union in 2021.
The number of stores seeking to unionize remains relatively small given that Starbucks operates 38,000 locations worldwide. If collective agreements are reached at some stores, Starbucks may face costly labor deals.
Federal courts have ordered Starbucks to reinstate workers who were fired after leading unionization efforts, and the National Labor Relations Board has issued more than 100 complaints against Starbucks for unfair labor practices in recent years.
Sell Starbucks Stock
There might come a time when it makes sense to buy Starbucks stock. But that time is not now. The company is dealing with a worldwide slowdown in sales of its pricey lattes and cappuccinos.
The pain is being felt broadly, and the company has telegraphed that it will continue for several more quarters. There also appears to be internal dissension within Starbucks and a union drive has momentum.
Given all the problems and bleak outlook, investors should steer clear of this once mighty coffee chain. Starbucks stock is not a buy.
On the date of publication, Joel Baglole did not have (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.
