Starbucks: Bright Spots Despite Declining Sales

Starbucks shares have stabilized despite the recent announcement of declining same-store sales by the coffeehouse giant. Investors are drawing new hope from recent partnerships and the company's turnaround plan. However, the stock remains down more than 20% year-to-date. The US and China remain the central markets for Starbucks, with both continuing to struggle in the third quarter. In the US, same-store sales declined by 2%, compared to a 7% increase last year, and customer frequency decreased by 6%. Positively, the average ticket price rose by 4%. In China, same-store sales also saw a decline of 14%, following a 46% increase last year. Customer frequency and the average ticket price both fell by 7%. Despite intensified competition and subdued consumer demand, Starbucks in China recorded an increase of 1.6 million Starbucks Rewards members, reaching an all-time high of 22 million. Total revenue fell to $9.1 billion, a decline of 1%. Global same-store sales dropped by 3%, while adjusted earnings per share decreased by 7% to $0.93. Starbucks opened 526 new stores and ended the quarter with a total of 39,477 locations. Management reported seeing initial positive signs ("green shoots") of a turnaround in the US. Improvements in workforce planning, employee turnover, and inventory management provide hope for future recoveries. With the introduction of the first phase of the Siren Craft System, wait times were reduced, potentially increasing comparable sales by 1% to 1.5%. The company also plans to open new stores more quickly and renovate existing ones, especially in growing second- and third-tier cities. Starbucks is expanding its cooperation with delivery service Gopuff to open 100 delivery-only kitchens in the US. Product-wise, the introduction of Summer Berry Starbucks Refreshers with pearls stood out, marking the most successful first week of sales in company history. In October, the Milano Duetto coffee beans will be launched globally. In China, the company is exploring new strategic partnerships to strengthen its market position and accelerate growth. Starbucks remains committed to the premium segment there and sees significant long-term growth potential. Elliott Investment Management has now taken a stake in Starbucks and is offering constructive talks. While the short-term Q3 results were disappointing, the measures of the turnaround plan give reasons for optimism. China remains a long-term growth story with significant opportunities, but also risks. Currently, Starbucks is trading at a forward P/E of around 19, a reasonable value for an iconic brand with substantial expansion opportunities. The progress in the US and the involvement of Elliott Management are encouraging. Ultimately, patience is required until the turnaround materializes in China as well.