STARBUCKS Q2 FY25 - EARNINGS AT A GLANCE "My optimism has turned into confidence that our 'Back to Starbucks' plan is the right strategy to turn the business around and to unlock opportunities ahead. Improving transaction comp in a tough consumer environment at our scale is a testament to the power of our brand and partners getting 'Back to Starbucks.' We are on track and if anything, I see more opportunity than I imagined." - Brian Niccol, chairman and ceo GLOBAL NET REVENUE 1 74% 21% 5% NORTH AMERICA INTE ...

Core Viewpoint - Starbucks' new CEO Brian Niccol acknowledged that despite positive signs in business recovery, the latest quarterly financial performance fell short of expectations, posing significant challenges for the new management team [1] Financial Performance - For the second quarter of fiscal year 2025, Starbucks reported a 1% year-over-year decline in global same-store sales, which was below market expectations [1] - The company's earnings per share (EPS) also did not meet expectations, leading to a strong negative reaction in the capital markets, with the stock price dropping significantly in after-hours trading [1] - Year-to-date, Starbucks' stock has declined by 7%, slightly underperforming the S&P 500 index [1] Challenges Faced - The company is facing multiple challenges, including consumer backlash due to its stance on Middle Eastern issues, price increases, and longer wait times at stores, which have led to customer attrition [1] - There is a prevailing pessimism among U.S. consumers regarding the economic outlook, which is reflected in the weak performance of similar dining companies [1] Management Response - Since taking over in September, Niccol's team has initiated significant reforms, including redesigning store layouts to create a more inviting atmosphere and enhancing service efficiency through increased staffing and optimized order algorithms [1][2] - During the earnings call, Niccol emphasized the importance of addressing the harsh reality of the second-quarter financial data and noted that operational improvements are showing strategic value beyond just EPS metrics [2] Regional Performance - North America experienced a greater-than-expected decline in same-store sales due to reduced customer traffic, while international markets showed relative stability with a 2% increase in comparable sales [2] - The Chinese market, a strategic focus, has stabilized with significant improvement compared to the previous quarter [2] Sales Trends - Global comparable sales showed signs of improvement, with the decline narrowing from 4% in the previous quarter, although the company has faced sales declines for five consecutive quarters [2] Strategic Initiatives - To mitigate external risks, Starbucks is diversifying coffee bean sourcing, optimizing logistics to reduce tariff impacts, and increasing strategic inventory reserves to buffer against fluctuations in Arabica coffee prices [2] - Niccol assured customers that there would be no price increases for products or services until the end of the fiscal year, around the end of September [2] Market Sentiment - Analysts have noted that the biggest issue facing Starbucks is its disappointing performance in the U.S. market, which may lead investors to lose patience with the company's long-term recovery efforts [3] - Positive feedback has been received regarding the new management's initiatives to streamline the menu and enhance operational efficiency [3]

Market Overview - The S&P 500 experienced its sixth consecutive day of gains, with no negative impact from economic data or earnings reports [1] - The Dow increased by 300 points (+0.75%), the S&P 500 rose by 32 points (+0.58%), and the Nasdaq grew by 95 points (+0.55%) [2] - Bond yields decreased, with the 10-year yield at 4.17% and the 2-year yield at 3.65% [2] Housing Market - The Case Shiller Home Price Index for February showed a headline increase of +3.9%, which is 20 basis points lower than the previous month [3] - The 10-City survey reported a +5.2% increase, down from +5.7%, while the 20-City index showed a +4.5% increase, down from +4.7% [3] - Notable cities for rising home prices included New York City (+7.7%), Chicago (+7.0%), and Cleveland (+6.6%) [3] Labor Market - The JOLTS report for March indicated job openings at 7.19 million, below the expected 7.5 million, with the previous month revised down to 7.5 million [5] - Job quits remained stable at 3.3 million, with a quits rate of +2.1% [6] - Layoffs in the retail sector decreased by 66,000, and federal government layoffs fell by 11,000 [6] Consumer Confidence - The Consumer Confidence Index (CCI) for April dropped to 86.0, below the expected 87.3 and down 7.9 points from the previous month [7] - The Expectations Index fell to 54.4, a decrease of -12.5 month over month, marking the lowest level since October 2011 [8] - 32.1% of consumers expect fewer jobs in the next six months, the highest rate since April 2009 [8] Company Earnings - Visa reported fiscal Q2 earnings of $2.76 per share, exceeding expectations of $2.68 and the previous year's $2.51, with revenues of $9.59 billion slightly above the anticipated $9.56 billion [10] - Starbucks missed both earnings and revenue expectations for fiscal Q2, reporting earnings of 41 cents per share and revenues of $8.76 billion, below the expected $8.79 billion [12] - Booking Holdings posted strong Q1 results with earnings of $24.81 per share and revenues of $4.76 billion, surpassing expectations [13] - Seagate Technologies exceeded estimates with fiscal Q3 earnings of $1.90 per share and revenues of $2.16 billion, raising guidance for the next quarter to $2.40 per share [14]

View all Key Company Metrics for Starbucks here>>> Shares of Starbucks have returned -14.5% over the past month versus the Zacks S&P 500 composite's -0.8% change. The stock currently has a Zacks Rank #3 (Hold), indicating that it could perform in line with the broader market in the near term. While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall Street expectations to determine their next course of action, some key metrics always pro ...

Core Insights - Starbucks is focusing on hiring more baristas and increasing their working hours to improve customer service and sales growth, as stated by CEO Brian Niccol [1][2][3] - The company plans to implement the Green Apron Service model in about one-third of its US locations by the end of the 2025 fiscal year [2] - Starbucks' shares fell nearly 7% after announcing its investment in employee hours, which marks a shift from previous staffing strategies that led to understaffing [3][4] Staffing Strategy - The new approach represents a departure from the past few years where Starbucks reduced labor hours and relied on new equipment to maintain service levels [3][4] - Niccol acknowledged that the assumption that equipment could replace labor was inaccurate, leading to the decision to increase labor hours [5] Operational Changes - A pilot program at 700 stores demonstrated that adding labor hours improved service for both mobile orders and walk-in customers [5] - Starbucks is also utilizing a new order sequencing algorithm in 400 stores, which has reduced customer wait times and allowed employees more time to engage with customers [6][7] Customer Experience - The changes aim to create a more comfortable environment for customers, enhancing the connection between baristas and patrons [6][7] - Additional initiatives under Niccol's leadership include requiring purchases for in-store seating and encouraging baristas to personalize to-go cups [7]

Core Viewpoint - Starbucks reported quarterly earnings of $0.41 per share, missing the Zacks Consensus Estimate of $0.49 per share, and down from $0.68 per share a year ago, indicating an earnings surprise of -16.33% [1][2] Financial Performance - The company posted revenues of $8.76 billion for the quarter ended March 2025, missing the Zacks Consensus Estimate by 0.31%, but up from $8.56 billion year-over-year [2] - Over the last four quarters, Starbucks has surpassed consensus EPS estimates only once [2] Stock Performance - Starbucks shares have declined approximately 8.1% since the beginning of the year, compared to a -6% decline in the S&P 500 [3] - The current Zacks Rank for Starbucks is 3 (Hold), indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.87 on revenues of $9.51 billion, and for the current fiscal year, it is $2.92 on revenues of $37.25 billion [7] - The trend of estimate revisions for Starbucks is mixed, which could change following the recent earnings report [6] Industry Context - The Retail - Restaurants industry, to which Starbucks belongs, is currently in the bottom 19% of over 250 Zacks industries, suggesting potential challenges ahead [8]

Core Viewpoint - Guggenheim analyst Gregory Francfort has reiterated a Neutral rating on Starbucks Corporation (SBUX) and lowered the price forecast from $95 to $83 following the company's Q2 fiscal year 2025 financial results, which showed revenue and earnings per share below analyst expectations [1][3]. Financial Performance - Starbucks reported Q2 revenue of $8.76 billion, missing the analyst estimate of $8.86 billion, and adjusted EPS of $0.41, below the consensus of $0.50 [1]. - Consolidated net revenue rose 2% year-over-year, but global comparable store sales fell 1%, with transactions down 2% and average ticket up 1% [2]. Market Conditions and Competition - Rising competition from local brands, the impact of the trade war, and potential resistance to U.S. brands are cited as risks for Starbucks [3]. - North America comparable store sales decreased by 1%, international sales fell by 2%, and sales in China remained flat [2]. Margin and Cost Management - Margin expansion forecasts have been lowered, with 2027 EBIT margins now expected to improve by approximately 150 basis points over 2025, down from 270 basis points previously [3]. - The U.S. workforce for Starbucks has shrunk by about 3% over five years, despite a 12% increase in store count, indicating ongoing pressure on managing store operating costs [4]. Commodity Prices - The adjustment in margin forecasts considers expected relief in arabica coffee prices, which are currently above $4 per pound but are forecasted to dip to the low $3s by late 2026 [4]. Stock Performance - Following the earnings report, Starbucks shares were down 1.24% in after-hours trading, priced at $83.80 at the time of publication [5].

Core Insights - Starbucks' second-quarter results were slightly below expectations, with CEO Brian Niccol expressing optimism about the company's turnaround efforts [1][3] - The company is implementing a 'Back to Starbucks' plan, which includes various operational changes aimed at improving customer experience and efficiency [2] Financial Performance - Global comparable sales decreased by 1%, which was worse than the expected decline of 0.59% [3] - In the US, comparable sales fell by 2%, compared to the consensus estimate of a 0.26% decline [3] - Net revenue for the quarter was reported at $8.8 billion, slightly below the Bloomberg estimate of $8.83 billion [3] Operational Changes - Changes implemented since Niccol became CEO include new store furniture and an order sequencing algorithm to enhance service efficiency [2] - Initiatives aimed at improving customer experience include requiring employees to write messages on to-go cups and allowing customers to add milk to their drinks themselves [4]

Financial Data and Key Metrics Changes - Total company revenue for Q2 FY2025 was $8.8 billion, reflecting a 3% increase in constant currency compared to the prior year, despite a 1% decline in comparable store sales [37][30] - Earnings per share (EPS) was $0.41, down 38% from the prior year, primarily due to expense deleverage and increased store investments [45][30] - Global operating margin contracted by 450 basis points to 8.2%, driven by labor investments and deleverage [43][30] Business Line Data and Key Metrics Changes - North America experienced a 2% decline in comparable store sales, with transaction declines improving to negative 4% [38][30] - Canada reported positive comparable store sales and transaction growth, with food sales up 12.5% [40][30] - China's comparable store sales were flat, but positive transactions and expanding margins were noted [41][30] Market Data and Key Metrics Changes - Eight of the top ten international markets returned to flat or positive comparable sales growth [27][30] - The UK and Middle East reported positive transaction comps, while Japan achieved its sixteenth consecutive quarter of comp growth [28][30] - In the U.S., market share, brand sentiment, and customer contacts regarding wait times are improving [38][30] Company Strategy and Development Direction - The "Back to Starbucks" strategy focuses on customer experience, partner engagement, and operational improvements [4][5] - Investments are being made in labor rather than equipment to enhance service speed and customer connection [19][60] - The company aims to reclaim its coffeehouse heritage and improve store designs to foster community connections [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the turnaround strategy, noting early indicators of recovery in North America and positive signs in Canada [9][30] - The company is committed to building a resilient business that can thrive in various economic environments [6][30] - Future growth is expected to be driven by improved customer experiences and operational efficiencies [31][30] Other Important Information - The company is evaluating its store portfolio and new store pipeline to ensure better unit economics [42][30] - A focus on reducing new store build costs is underway to enhance returns [42][30] - The company is committed to transparency throughout the turnaround process [36][30] Q&A Session Summary Question: Follow-up on labor investment and CapEx - Management confirmed that the focus is on labor investment rather than equipment, which allows for quicker improvements in service speed and throughput [51][53] Question: Margin concerns and labor investments - Management acknowledged that while labor investments have impacted margins, they are essential for improving customer experience and driving transaction growth [57][60] Question: Evaluation of the store portfolio - Management indicated that they are slowing down new builds to reset renovation and build costs, aiming for a more efficient growth strategy [64][66] Question: Menu simplification impact - Management noted that simplifying the menu has led to improved transaction comps, with a significant increase in stores reporting positive sales [68][70] Question: Resilience in a challenging macro environment - Management emphasized the importance of creating a strong third place experience to maintain customer traffic, even in economic downturns [75][76] Question: Mobile order sequencing pilot results - Early results from the mobile order sequencing pilot show improved service times and enhanced partner-customer connections [79][81] Question: Return on Invested Capital (ROIC) focus - Management highlighted the importance of durable growth and good returns on invested capital, indicating a shift in focus towards these metrics [84][86]

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