Starbucks (SBUX) saw its stock rise over 8% during Wednesday’s trading session, despite reporting weaker-than-expected global same-store sales for the fourth quarter. The company’s global same-store sales dropped by 7% year-over-year, driven by an 8% decline in transactions. This drop in customer visits was a key factor behind the disappointing results.
However, there was some cause for optimism in the first quarter as the transaction decline narrowed to 6%. While still a negative trend, this marks an improvement from the 8% drop observed in Q4, suggesting that Starbucks is beginning to see a slight recovery in customer traffic.
Despite this positive note, the company’s operating margin took a substantial hit. In Q1, Starbucks’ operating margin dropped to 11.9%, compared to 15.8% in the prior-year period. This steep decline reflects the pressures the company is facing in terms of rising costs, particularly from investments in its workforce and the decision to eliminate the extra charge for dairy substitutes. While the move to pay workers more is widely seen as a necessary step to address labor market challenges, it has put additional strain on profitability.
These results raise concerns among investors about the company’s ability to maintain healthy margins while also navigating a challenging economic environment. Starbucks has acknowledged these pressures and emphasized that it is staying on track with its long-term turnaround plan, a strategy spearheaded by newly appointed CEO Brian Niccol, who was brought in with a lucrative compensation package back in August.
Looking ahead, Starbucks has cautioned that its earnings per share (EPS) will likely decline further in Q2, largely due to restructuring charges and other adjustments as the company works through its turnaround efforts. However, management remains optimistic that its EPS will rebound and show year-over-year growth in the following quarters, providing some hope for investors in the longer term.
