Starbucks shares plummeted Tuesday evening by roughly 11.5% after the coffee giant delivered a much weaker-than-expected quarter. The company also cut its outlook for fiscal 2024, leaving little room for optimism of a quick rebound in traffic at its stores. Revenue fell 2% year over year to $8.56 billion in the fiscal 2024 second quarter, below the $9.13 billion expected by analysts, according to LSEG. Adjusted earnings per share of 68 cents fell 14% year over year, missing the 80-cent estimate. Starbucks Why we own it : Starbucks has one of the most recognizable brands of any restaurant. But over the last few years, operations have been challenged by store inefficiencies and a slow recovery in China. Under CEO Laxman Narasimhan, we think there is a plan in place to unlock growth and improve margins over time. Competitors : Dutch Bros , McDonalds and Dunkin’ Donuts Most recent buy : Feb. 14, 2024 Initiated : August 2022 Bottom line We have been saying for weeks to be ready for a miss when it came time for Starbucks to report. We thought the setup was similar to its earnings report a quarter earlier when the entire market knew a miss was coming. When management missed last quarter by 3 cents per share but said it had multiple paths to achieving its earnings growth outlook between 15% to 20%, the stock didn’t go down on the news. This quarter was much different. The transitory challenges the company called out last time persisted this quarter. The combination of these ongoing issues with what management said was severe weather and a challenging consumer backdrop led to a steep decline in store traffic that made it too hard to drive margin improvement and a miss that was far greater than anticipated. Some of the shortfall was due to unmet demand, which management is attacking with a plan to unlock capacity and improve the customer experience. But the continued sluggish results here have us wondering if Starbucks alienated too much of its customer base by raising…
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