Starbucks reported mixed quarterly results on Wednesday, but there was enough in the numbers and earnings call to continue betting on CEO Brian Nicol’s turnaround efforts. LSEG said fiscal fourth-quarter revenue rose 5.5% annually to $9.57 billion, beating consensus estimates of $9.35 billion. Adjusted earnings per share (EPS) for the three months ended Sept. 28 totaled 52 cents, below expectations of 56 cents, according to LSEG data. On an annual basis, adjusted EPS decreased 35%. Same-store sales increased 1% globally due to increased comparable transactions. That beat the FactSet consensus for a 0.3% decline. Same-store sales are a key metric in the restaurant industry used to smooth out the effects of store closures and openings and currency fluctuations. Often used interchangeably with comparable store sales, or comps. SBUX YTD Mountain Starbucks stock performance year-to-date. Starbucks stock wasn’t moving much in after-hours trading Wednesday, falling slightly to less than $84 per share. While the stock has rebounded a bit in recent weeks, things have been tough for Starbucks since the summer, as have restaurants overall. Sentiment toward the group has soured as investors worry about the health of U.S. consumers and their spending, particularly on restaurants. The bottom line is that after a brief flare-up of concerns about an AI bubble, Wall Street is once again riding the AI wave. On the other hand, the market has no love for restaurant groups. Here’s a look at how Chilean parent company Brinker International’s stock traded in regular trading Wednesday, despite another impressive quarter of same-store sales growth. Add Chipotle to the list. The company’s stock fell more than 10% Wednesday night after the burrito chain and Mr. Nicol’s former employer lowered its guidance and made cautious comments about the eating habits of younger consumers. Against this backdrop of ugly circumstances, Starbucks needed to deliver a blockbuster quarter to show investors some love for the stock. There were no blockbuster hits. But it wasn’t a huge failure either. It’s been more than a year since Nicol joined the coffee chain, and signs of progress are growing, even if the stock price doesn’t reflect it. Starbucks’ U.S. operations, the focus of Nicol’s turnaround efforts so far, saw flat same-store sales in the July-September period. At first glance, that’s not remarkable. But if you look closer, Starbucks turned profitable in September, and that momentum has continued into October. This monthly pace is encouraging and bodes well for Starbucks’ ability to meet Wall Street’s same-store sales expectations for the current holiday quarter. Even better, the positive profits are driven by transactions, rather than price hikes or bulk orders, indicating that customers feel better about the brand and the service they receive at the cafe. During the quarter, a full rollout of Starbucks’ new operating and staffing model (called Green Apron Service) was implemented in the company’s U.S.-owned stores. At the financial results conference, Nicol said that the service is showing results, with more than 80% of stores achieving the service goal of “within four minutes.” That’s been the case despite the seasonal resurgence of pumpkin spice lattes and other fall drinks, leading to an increase in business. “I think the fourth quarter was a turning point for our U.S. business,” Nicol said on a conference call. “So we’re obviously not declaring victory. We still have a lot of work ahead of us, but it’s clear that we’re moving in the right direction, and we believe we’re on the way to building the best Starbucks ever.” Another highlight of the quarter: Same-store sales in the highly competitive Chinese market rose 2%, slightly better than expected, driven by a 9% increase in comparable transactions. This was partially offset by a 7% decrease in spend per customer, known as average ticket size. However, ticket size was expected to decline as Starbucks lowered prices in China to better compete with local rivals. Most importantly, Starbucks has posted positive profits for consecutive quarters after a tough downturn in China. It helps that the business is growing again, considering Starbucks has been aggressively acquiring parts of its China operations. Putting all this together, Wednesday night’s subdued market reaction is a classic case of a good quarter and a bad group. In fact, Jim Cramer suggested Wednesday night that Starbucks is a buy at current prices. Therefore, we reiterate our 1 Buy rating and $100 price target. Commentary Starbucks achieved near sales growth in the fourth quarter, both company-wide and in its major markets of the United States and China. But skeptics of Starbucks’ story will be quick to point to its performance on profitability metrics (both adjusted EPS and adjusted operating margin) to justify staying on the sidelines. why? One of the key arguments in the Starbucks bear case is that Nicol’s decision to significantly increase staffing at its U.S. stores and spend significant amounts of money on store renovations will limit the company’s earnings power and limit the stock’s ultimate upside. While it’s true that Starbucks’ operating margins have been lower than public expectations for three quarters, in our view Nikkor’s efforts will drive strong top-line growth, and combined with cost discipline in other parts of the business, including corporate headquarters, the company will be able to achieve satisfactory revenue growth. We want to be patient and see it through to the end. Starbucks plans to provide formal long-term guidance through 2026 at its investor day in January. We hope this event provides investors with a clear timeline for the earnings inflection period. For now, Chief Financial Officer Kathy Smith offered some assurance on Wednesday night about revenue growth momentum. “It starts at the top line. We expect these deals to continue to grow and are optimistic about that. We have plans in place. [Niccol has] Outlined. And over time, the revenue lags behind. So we said we’re going to grow the top line first, followed by revenue. “But we’re taking all the necessary steps right now to make sure that all of our transactions are more profitable in the future, so we’ll leave it at that for now.” For that matter, Starbucks closed 627 stores in the quarter as part of a restructuring plan it announced in September, the majority of which were in the U.S. or Canada. During the conference call, Smith explained that these stores do not meet the company’s customer experience standards and many are not profitable. The results of these store closures will reduce but contribute to North American revenues. Has a slightly positive impact on operating income (Jim Cramer’s Charitable Trust is a long SBUX; see here for a complete list of stocks.) Subscribers to Jim Cramer’s CNBC Investment Club wait 45 minutes after Jim sends a trade alert before buying or selling stocks in the Charitable Trust’s portfolio. When Jim talks about stocks on CNBC TV, he waits 72 hours after publication. The above investment club information is subject to our Terms of Use and Privacy Policy, and receipt of the information you provide, along with our disclaimer, creates no fiduciary duty or obligation to you. With respect to investment clubs, no specific results or profits are guaranteed.
