Starbucks stock price rose by over 4% after Brian Niccol, its CEO, hailed its turnaround efforts, even as its financial results continued to deteriorate. It rose to $97.20, up by over 25% from its lowest point this year. This article explores its financial results and whether it is a good buy today.
Starbucks financial results download
Starbucks, the world’s largest coffee chain, published weak financial results on Tuesday. Its numbers showed that its same-store sales dropped by 2% in the third quarter, driven by a 2% drop in its comparable transactions.
The North American business continued to deteriorate, with its comparable store sales falling by 2%. Still, despite its ongoing deterioration, the Niccol, who led the turnaround at Chipotle said:
“We’ve fixed a lot and done the hard work on the hard things to build a strong operating foundation, and based on my experience of turnarounds, we are ahead of schedule.”
Niccol has announced several measures to reinvigorate the company’s growth. He has cut costs, and is now working on launching the Green Apron Service program that emphasizes on customer interactions.
At the same time, Niccol is opening fewer stores in the United States and is instead focusing on improving its existing operations. Most importantly, it is returning more seats in its stores as it seeks to make its stores more comfortable again. He said:
“In the U.S., partner engagement is rising, customer connection scores are up, shift completion is at a record high, non-Starbucks Reward customer transactions returned to growth, and more coffeehouses are delivering positive transaction comps.”
Niccol also expects to launch new products, a refreshed application, and an improved reward program.
Challenges remain
Starbucks is a well-known brand that will return to growth over time. However, it is facing major challenges that are hard to fix.
First, China, its second-biggest market, continues to face competition, which has led to pricing issues. Most of this competition is coming from brands like Luckin Coffee, which has over 24,000 stores, and Cotti Coffee, which has over 10,000 locations.
The surging competition means that Starbucks is no longer in the drivers seat in terms of pricing. It is being forced to reduce prices, which is affecting its revenues and margins.
Its Chinese operations had the same store sales of 2%, while its transactions rose by 6%. However, the average ticket fell during the quarter. These numbers explain why there have been rumors that it would sell its Chinese business. Analysts see the business attracting a valuation of about $10 billion.
The other risk is that some of these Chinese rivals are starting to expand overseas and applying the same model they used in China. Luckin Coffee recently launched its operations in the United States and is expected to keep growing there.
Starbucks stock price analysis
SBUX price chart | Source: TradingView
The daily chart shows that the SBUX price bottomed at $75 and has now bounced back to $96 . It has just formed the highly bullish golden cross pattern as the 50-day and 200-day Weighted Moving Averages (EMA) crossed each other. This cross is one of the most bullish patterns in technical analysis.
The stock has also formed a bullish flag pattern. Therefore, the most likely scenario is where the stock continues rising as bulls target the 2024 high of $116, up by 20% from the current level.
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