Starbucks Earnings: Not a Lot to Like About Results as Global Traffic Sputters

Wide-moat Starbucks' fiscal second-quarter earnings were very weak, sending shares spiraling (down 12%) in after-hours trading. Given the difficult trends, we expect pressure on sales to continue through fiscal 2025. To be clear, we do not think we've hit peak Starbucks, and we believe that the firm's long-term prospects remain extremely salient. However, the degree of comparable store sales pressure that the firm saw in its most recent quarter was shocking. Global comparable sales fell 4%, with traffic falling 7%. That represents a staggering 9-point comparable sales and 10-point comparable traffic decline over three months. As we digest earnings and sharpen our pencils regarding our 2024 and 2025 forecasts, we expect to lower our $105 fair value estimate by a high-single-digit percentage, with our outlook remaining slightly more constructive than the market reaction. Shares continue to look cheap, and long-term investors should find the current entry point attractive, though we suggest that investors fasten their seatbelts for the next 18 months.