On Wednesday, Goldman Sachs reaffirmed its Buy rating on Starbucks (NASDAQ:SBUX) stock, maintaining the $105.00 price target. The firm's analysis followed Starbucks' disclosure of preliminary fourth-quarter and full-year 2024 financial results. The coffee giant reported a 3.2% year-over-year decline in fourth-quarter sales to $9.1 billion, adjusted for constant currency, which fell short of both Goldman Sachs and consensus estimates by 2.7% and 3.1%, respectively.
The lower-than-expected sales were attributed to weaker comparable store sales (comps) in the United States, which decreased by 6% compared to estimates of a 4% to 3% decline. This was partly due to a significant 10% drop in transaction volume, despite a 4% rise in average ticket prices. Starbucks' efforts, including ramped-up investments and more frequent promotions through its app, did not yield the anticipated improvements in customer behavior in the U.S. market.
Moreover, the company's performance in China also contributed to the downturn, with comps falling by 14%, which was in line with Goldman Sachs' projections but more severe than the consensus estimate of an 11.6% decline. The decline in China was driven by a 6% reduction in transactions and an 8% decrease in the average ticket, amid heightened competition and a challenging macroeconomic environment that affected consumer spending.
Starbucks reported earnings per share of $0.80, marking a 24% decrease from the previous year on a constant currency basis. This figure was below both Goldman Sachs and consensus expectations, which were $0.94 and $1.02, respectively. Amidst the ongoing CEO transition and the current business climate, Starbucks has chosen to suspend its full fiscal year 2025 guidance.
In a separate announcement, the company increased its quarterly dividend to $0.61 per share. This represents a 7.0% year-over-year increase and is approximately $0.01 higher than both Goldman Sachs and consensus estimates.
In other recent news, Starbucks Corporation (NASDAQ:SBUX) has been the focus of multiple analyst adjustments. Deutsche Bank raised its price target from $118 to $120, maintaining a Buy rating, while Citi lowered its target from $99 to $96, keeping a Neutral rating. These changes follow Starbucks' recent earnings report which showed a 7% decrease in global comparable store sales, a 3% decline in consolidated net revenues to $9.1 billion, and a 25% drop in GAAP earnings per share to $0.80.
Despite these figures, Starbucks' Board of Directors approved an increase in the quarterly cash dividend from $0.57 to $0.61 per share. This marks the company's fourteenth consecutive annual hike, reflecting its commitment to returning value to shareholders.
Further, Starbucks has suspended its guidance for fiscal year 2025, a move analysts from Deutsche Bank suggest might provide new CEO Brian Niccol with flexibility to make strategic decisions. The company has also announced the addition of two new coffee innovation farms in Guatemala and Costa Rica as part of its global coffee research efforts.
Lastly, Starbucks has been facing calls for change from baristas and customers, with concerns ranging from understaffing and inadequate pay to the quality of coffee. This has led to escalating labor union actions across the United States, with employees holding strikes over staffing issues. These are among the recent developments at Starbucks Corporation.
InvestingPro Insights
Despite the recent challenges highlighted in Starbucks' preliminary fourth-quarter results, InvestingPro data reveals some positive aspects of the company's financial health. As of the last twelve months ending Q3 2024, Starbucks reported a revenue of $36.48 billion, with a modest growth of 4.17%. The company's operating income margin stands at a solid 15.12%, indicating efficient operational management.
InvestingPro Tips emphasize Starbucks' commitment to shareholder returns. The company has raised its dividend for 14 consecutive years and maintained dividend payments for 15 years straight. This aligns with the recent 7% dividend increase mentioned in the article, underscoring Starbucks' dedication to returning value to shareholders even in challenging times.
However, investors should note that Starbucks is trading at a high P/E ratio relative to its near-term earnings growth, with a PEG ratio of 3.03. This suggests that the stock may be relatively expensive compared to its growth prospects.
For those interested in a deeper analysis, InvestingPro offers 10 additional tips for Starbucks, providing a more comprehensive view of the company's financial position and market performance.
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