Starbucks Stock Sees Rise Despite Sales Decline

Shares of coffee giant Starbucks (NASDAQ: SBUX) experienced a notable boost on Wednesday, following the company’s announcement of its financial results for the fiscal first quarter of 2025. Despite a significant drop in global transactions, Starbucks stock rose by 7% as of 12:30 p.m. ET, surprising many analysts and investors alike.

Starbucks' Turnaround Plan Shows Promise

As Starbucks concluded its fiscal 2024, it was clear that the business faced increasing challenges. In the fourth quarter, global same-store sales had fallen by 7% year-over-year, primarily due to an 8% drop in transactions. However, the company reported that while transactions declined again in the first quarter, the decrease was less severe at 6%. Management indicated that they observed improving trends throughout the quarter, suggesting that their turnaround plans may be taking effect.

In the same quarter, Starbucks saw a downturn in its operating margin, which dropped to 11.9% compared to 15.8% in the previous year. This change is partly attributed to higher wages for employees and the decision to eliminate additional charges for dairy substitutes. While declining profitability raises valid concerns, it appears that investors are focusing on the potential for recovery that management is suggesting.

Ongoing Challenges Ahead

Despite the decrease in profitability, income investors can take comfort from management’s announcement that the upcoming dividend payment will proceed as scheduled, matching the previous dividend amount. In relation to the anticipated challenges ahead, Starbucks has indicated that earnings per share (EPS) will suffer a more significant decline in the next quarter as the company grapples with restructuring costs among other factors. However, beyond this, management foresees a rebound in EPS on a year-over-year comparison.

The key takeaway for investors is that although Starbucks is not yet back to achieving both revenue and profit growth, it is on a path toward recovery. As turnaround plans take time to implement, shareholders might be inclined to remain patient with CEO Brian Niccol’s leadership. It is essential, nonetheless, that Starbucks demonstrates better signs of progress with its strategic initiatives as the year unfolds.

Note: The author, Jon Quast, holds positions in Starbucks. This article serves as a neutral perspective on the stock's performance and the company’s developments.

Starbucks, Earnings, Stocks