Why Starbucks Rallied Despite Declining Sales -- and Is Now the Time to Buy the Stock?

Core Viewpoint - Starbucks is experiencing challenges in its key markets, the U.S. and China, but is implementing a turnaround plan that shows early signs of progress, particularly in the U.S. [1][7] Group 1: Recent Performance - In the U.S., same-store sales fell by 2% in the fiscal third quarter, compared to a 7% increase a year ago, with store traffic down by 6% and average ticket price up by 4% [2] - In China, comparable-store sales dropped by 14%, a significant decline from a 46% increase a year ago, with both traffic and average ticket price decreasing by 7% [2] - Overall revenue declined by 1% to $9.1 billion, with global comparable-store sales falling by 3%, and adjusted earnings per share (EPS) decreased by 7% to $0.93 [3] Group 2: Turnaround Initiatives - Management reported "green shoots" in the U.S. due to an action plan aimed at improving scheduling, employee turnover, and inventory management [4] - The introduction of the Siren Craft System is expected to reduce wait times by 10 to 20 seconds, potentially leading to a 1% to 1.5% increase in comparable-store sales [4] - The company plans to accelerate new store builds and remodels, focusing on tier 2 and tier 3 cities, and is expanding its partnership with Gopuff to open 100 delivery-only kitchens across the U.S. [5] Group 3: Product Developments and Strategic Moves - The launch of Summer-Berry Starbucks Refreshers beverages achieved the highest first-week sales in the company's history, contributing positively to the Refreshers lineup [5] - Starbucks is exploring strategic partnerships in China to enhance its competitive position and accelerate growth, while maintaining its premium brand status [5][6] - Elliott Investment Management has taken a stake in Starbucks, indicating constructive discussions that may support the company's turnaround efforts [6] Group 4: Market Outlook - Despite the struggles in the U.S. and China, there are signs of progress in the U.S. turnaround plan, which could positively impact future results [7] - The forward price-to-earnings (P/E) ratio for Starbucks is approximately 19 based on fiscal year 2025 estimates, suggesting potential value given the brand's expansion opportunities [7][8] - While challenges in China may persist due to competitive pressures, the long-term growth potential remains significant [7]