Is It Time to Sell Starbucks Stock?

Starbucks has faced challenges in the last year due to its stock decline and shrinking sales. The company’s Q2 numbers showed a “stunning across-the-board miss on all key metrics,” according to William Blair analyst Sharon Zackfia. The company’s total net revenue dropped this quarter, which hasn’t happened since 2020 when stores were shuttered due to the COVID-19 pandemic.

Starbucks is struggling to compete in China, the company’s largest single market outside the U.S. In 2023, sales in China accounted for nearly a third of all international revenue. Despite having 14% more stores in the country this year, sales dropped 11%, total transactions declined by 4%, and the average ticket shrank by 8%.

The company is facing stiff competition from companies like Luckin Coffee, its main competitor, who surpassed Starbucks in sales last year for the first time and now holds the top spot in the country. Luckin and other Chinese retailers are undercutting Starbucks on price, as Chinese consumers seem to care more for affordable coffee than a premium brand.

CEO Laxman Narasimhan stated in the latest earnings call that Starbucks is strengthening its premium position and focusing on shoring up its position with consumers who can afford its coffee. However, given the broader economic picture in China, it may not be the right tact.

In the U.S., Starbucks’s woes in the domestic market share similarities with its issues in China. Fewer people are making purchases at Starbucks and revenue is slipping; comparable store sales declined 3%, while transactions dropped 7%. Research from Mckinsey & Company shows a drop in “net intent” for non-alcoholic beverages of 8% in the coming quarter.

Narasimhan addressed the impact of a more cautious consumer, particularly with its more occasional customers, and noted that much is within their control. The company is taking initiatives to bring these customers back into the store by launching new products and demonstrating more value for them.

However, Starbucks still has a lot to offer and an incredible brand. It is undoubtedly one of the most recognizable brands on the planet, and if it can reverse some of these trends, it will prove it is still a force to be reckoned with.

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