24/7 Insights
- Starbucks used to be a growth company, but its stock is down.
- Earnings are part of the reason, but the real challenge is inflation.
Starbucks Corp. (NASDAQ: SBUX) was once the bright shining light of fast-food companies. It charged large premiums for coffee and even larger ones for special drinks. The food was priced to drive strong margins. The stock rose from $85 five years ago to $125 in July 2021. After that five-year trip, it is back to $80.
Eventually, the consumer got tired of the high prices. On the most recent earnings call, CEO Laxman Narasimhan said, “In this environment, many customers have been more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent.” Inflation, which Americans feel is high (no matter what government numbers show), has made people feel pinched financially. (Starbucks has union problems as well.)
It is easy to say that Starbucks’ earnings are the primary reason the share price has crashed. It has been down 22% in the past year, while the S&P 500 has been up 25%. Revenue fell 2% in the most recent period to $8.6 billion. Per-share earnings fell 14% to $.68. Narasimhan said that Starbucks had plans to improve the numbers. In reality, there is nothing he can do about inflation and the belief by many Americans that their buying power is shrinking.
The carefully followed Survey of Consumer Sentiment from the University of Michigan shows Americans are worried about inflation, particularly compared to the pre-pandemic levels. The consumer price index shows the cost of living has dropped to about 3% from 8% two years ago. Starbucks’ challenge is that people don’t believe that.
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