Shares of Starbucks Corporation SBUX have gained 10.7% in the past three months compared with the Zacks Retail – Restaurants industry’s 0.1% growth. The stock has outperformed the Zacks Retail-Wholesale sector’s and the S&P 500’s decline of 4.9% and 4.8%, respectively.
Starbucks is undergoing significant changes that are influencing its stock performance. The company’s efforts to stabilize operations through disciplined investments in labor, marketing, technology and store optimization are gaining fruit.
SBUX Three-Month Price Performance
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Despite the positive momentum, some analysts caution against jumping in too soon. A recent legal development saw a jury award $50 million to a delivery driver burned by Starbucks tea, which could have financial implications for the company. Furthermore, market volatility, driven by shifting U.S. tariff policies and waning enthusiasm for AI stocks, is exerting pressure on broader equities.
Currently, SBUX is trading 16.3% below its 52-week high of $117.46. So, should investors pour more capital into SBUX shares now? Let’s take a closer look.
Factors Favoring Starbucks Stock
Starbucks has been undergoing a transformative period, with a strategic shift aimed at revitalizing its brand and operations. One of the most promising aspects of Starbucks’ strategy is the “Back to Starbucks” initiative, which focuses on four key pillars. First, the company is shifting away from discount-driven promotions and focusing on a premium coffee experience. Second, with improved staffing models and enhanced service routines, Starbucks aims to streamline morning transactions, a critical revenue driver. Third, initiatives such as bringing back condiment bars and ceramic mugs enhance the in-store experience, reestablishing Starbucks as a community coffeehouse.
Starbucks' focus on operational excellence, backed by a reinvention plan, has resulted in significant improvements. During the first quarter of fiscal 2025, Starbucks swiftly realigned its business, mission and marketing efforts to reinforce its position as a premier coffee brand. The company reduced reliance on discount-driven promotions, resulting in a 40% decline in discounted transactions year over year.
Additionally, Starbucks eliminated extra charges for non-dairy milk and customizations while identifying further steps to enhance pricing transparency for customers. As part of this effort, the company recently launched its "Coffee Forward" marketing campaign in the United States, aimed at broadening its customer reach. Its move to reallocate promotional spending toward brand marketing is already showing signs of increased customer engagement. Additionally, the continued growth of Starbucks Rewards membership and non-member traffic indicates strong brand loyalty.
Starbucks is piloting a new in-store prioritization algorithm and exploring additional technology investments to optimize order sequencing and improve operational efficiency. The company is also advancing initiatives that leverage the strength of its mobile app, including the development of a capacity-based time slot model that enables customers to schedule mobile orders. A midyear update to the Starbucks app will likely streamline customization options, enhance upfront pricing clarity and introduce real-time price adjustments as customers modify their beverages. Additionally, it plans to fully implement digital menu boards across all U.S. company-owned stores within 18 months. These enhancements aim to improve customer experience by making menu offerings clearer and highlighting customization options more effectively.
Starbucks sees significant potential in expanding its store count. The company is actively pursuing renovations, new builds and portfolio adjustments to enhance its store network. Looking ahead, Starbucks envisions higher growth and margin opportunities in China. The company is building the next generation of Starbucks, grounded with premium brands and incorporating more digital, innovative and locally relevant elements. It is in the early stages of exploring strategic partnerships to further enhance its competitive position, accelerate growth and drive long-term success.
What May Pull Back SBUX Stock?
Weak Comparable Sales: Starbucks’ comparable store sales have been affected by a challenging operating environment driven by reduced customer traffic. During the fiscal first quarter, global comps declined 4% due to a 6% decline in comparable transactions. Segment-wise, comps in the North America segment declined by 4% due to an 8% fall in comparable transactions, while International comps reduced by 4% due to a 2% decline in average tickets.
China’s comparable store sales declined 6%, attributed to a 4% decline in average tickets and a 2% fall in comparable transactions. The China market for the company is hurting due to intensified competition and a soft macro environment impacting consumers’ sentiments.
Margin Compression: During the fiscal first quarter, Starbucks’ operating margin contracted 390 basis points year over year to 11.9%. This decline was largely attributed to higher labor costs, wage increases, and added staffing hours aimed at improving service speed. The removal of extra charges for non-dairy milk customizations also put additional pressure on margins. While these investments may enhance the customer experience in the long term, they are currently eroding profitability.
Suspended Guidance Adds to Uncertainty: Management has suspended full-year guidance, citing ongoing restructuring efforts and a shifting strategic focus. The lack of visibility into future earnings and growth projections raises concerns about the company's ability to stabilize its financial performance. Investors typically seek clarity and consistency, making this uncertainty a red flag.
Downward Earnings Estimate Revision Ail SBUX Stock Prospects
Starbucks’ fiscal 2025 earnings per share (EPS) estimates have been revised downward, dropping from $3.10 to $2.99 over the past 60 days. This downward trend reflects weakening analyst confidence in the stock’s near-term prospects.
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The 60-day earnings estimate growth trend for SBUX remains lower for 2025 compared with other industry players, including BJ's Restaurants, Inc. BJRI, Brinker International, Inc. EAT, and Dutch Bros Inc. BROS. Over the past 60 days, earnings estimates for 2025 for BJRI, EAT and BROS have improved 13.8%, 39.8% and 6.9%, respectively.
Technical and Valuation Insights for SBUX Stock
From a technical perspective, SBUX stock is currently trading below its 50-day moving average, signaling a bearish trend. This could deter momentum-driven investors and may lead to further short-term volatility in the stock price.
SBUX Stock Trades Below 50-Day Moving Average
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Starbucks is trading at a discount. SBUX is currently trading at a forward 12-month price-to-sales (P/S) multiple of 2.90X, well below the industry average of 4.12X, reflecting an attractive investment opportunity.
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Conclusion: Hold SBUX Stock for Now
Starbucks stock has demonstrated resilience. The company's strategic initiatives — ranging from operational enhancements and technology upgrades to store expansion — underline its long-term growth potential. However, near-term headwinds, including declining comparable sales, margin pressures and suspended full-year guidance, present risks.
While Starbucks is making meaningful strides to revamp its business, uncertainty surrounding its turnaround execution and broader economic challenges may limit immediate upside potential. Given this Zacks Rank #3 (Hold) stock’s recent run-up and ongoing restructuring efforts, investors may find it prudent to hold their positions rather than initiate fresh buying.
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BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
Starbucks Corporation (SBUX) : Free Stock Analysis Report
Brinker International, Inc. (EAT) : Free Stock Analysis Report
Dutch Bros Inc. (BROS) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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