SBUX Earnings Preview: Preannounced last week, is this the bottom?
2min read Starbucks (SBUX) is set to report its Q4 earnings tonight after the market close, with expectations of an EPS of $0.85 and revenue of $9.6 billion according to FactSet consensus. However, the company issued a preannouncement on October 22, revealing preliminary Q4 results that missed projections, with EPS at $0.80 and revenue of $9.1 billion. This preannouncement, which included a suspension of FY25 guidance, caught analysts' attention, prompting mixed reactions; while some remain cautious, others view this as an opportunity for new CEO Brian Niccol to set a fresh course for the company.
The preannounced Q4 figures showed a challenging environment, with global comp sales down 7% and U.S. comparable transaction volumes declining by 10%. Analysts noted that Niccol, who joined Starbucks from Chipotle, faces a substantial turnaround task, especially given the promotional activities that failed to boost Q4 performance. While his predecessor at Chipotle, Niccol revitalized the brand and significantly increased profits, there is cautious optimism he can leverage his expertise to similarly re-energize Starbucks.
This report marks Niccol’s first earnings call as Starbucks’ CEO, and analysts are keenly watching for his early strategies and observations. He is expected to outline his initial approach, which may include streamlining Starbucks' complex menu, improving store operations, and broadening the brand appeal beyond loyal Rewards members. Niccol's emphasis on reconnecting with lower-frequency customers and enhancing in-store experiences could become focal points of the new strategy.
China, Starbucks' second-largest market, is also under intense scrutiny due to its recent sales challenges amid heightened competition and macroeconomic pressures. Analysts anticipate Niccol may signal a potential slowdown in aggressive expansion plans for China, opting instead for a more cautious growth approach as he prioritizes stabilizing the U.S. market. Given these complexities, Niccol may reserve a detailed strategic outline for early 2025, aiming to solidify his turnaround framework by then.
Some analysts believe the worst may be over for Starbucks, seeing this quarter as a possible "kitchen sink" moment that could represent a bottom. The suspension of FY25 guidance gives Niccol the latitude to implement his vision without the pressure of prior expectations, an approach that some view as necessary to rebuild long-term investor confidence. For many, Niccol’s proven track record at Chipotle suggests he could replicate similar gains for Starbucks if given time and operational flexibility.
The company's increased quarterly dividend to $0.61 per share was a surprising move amidst the disappointing preannounced results, potentially indicating management's confidence in free cash flow sustainability. This dividend hike, despite the tough quarter, has supported share resilience, with some investors interpreting it as a positive sign of the company’s long-term financial stability and potential for recovery under Niccol’s leadership.
As Starbucks reports tonight, analysts will be focused on Niccol's commentary on FY25 priorities and any preliminary plans he shares to tackle Starbucks' challenges. With the potential for this quarter to mark a turnaround point, investors will closely watch both the immediate reaction and the longer-term impact of Niccol’s leadership on one of the world’s most recognized coffee brands.
