Updated Aug 7 at 11:22am ET.
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U.S. employers cut 23,000 jobs in July, falling well short of the 80,000 new jobs analysts expected. This shift suggests the labor market is cooling faster than anticipated, which often leads to people spending less on non-essential items like premium coffee.
For Starbucks, this is a trend to watch because its turnaround plan relies on customers visiting more often and spending more per visit. If people feel less secure in their jobs, they may cut back on daily habits, making it harder for the company to maintain its recent sales growth in the U.S.
Source: Bloomberg Markets and Finance
The company is bringing back its Pumpkin Spice Latte and a full lineup of seasonal food and merchandise this month. This annual fall launch is a major driver of customer traffic and often marks the company's highest-volume sales period of the year. While the return of a seasonal drink is routine, the timing matters for the current turnaround effort. Management is focused on getting more people into stores to prove that its new strategy to speed up service and simplify the menu is working. A successful fall launch would provide a helpful data point on whether customers are responding to the improved store experience.
New data from China Beige Book shows that consumers in China are spending less, signaling a slowdown in the world's second-largest economy. This is a headwind for Starbucks because China is its most important growth market outside of North America.
The company is currently working to stabilize its business there through a joint venture, but that effort becomes much harder if the broader population is cutting back on premium coffee. While the U.S. business is showing signs of recovery, persistent weakness in China could offset those gains and drag on overall profit growth.
Source: CNBC Television
Starbucks reported adjusted earnings of $0.85 per share for the quarter, far higher than the $0.66 analysts expected. The company also raised its profit targets for the rest of the year, signaling that the new strategy to simplify the menu and speed up service is working.
This is a major win for the turnaround plan led by CEO Brian Niccol. The stock rose as investors saw proof that the company can grow sales in its home market by focusing on the basics of the cafe experience. While challenges in China remain, the strength in the U.S. business provides the cash and confidence needed to keep the recovery on track.
Source: Proactive Investors
The company is testing carbonated versions of its Refresher drinks in select markets. These non-coffee, cold beverages are a key part of the company's growth strategy because they are popular with younger customers and are often bought in the afternoon when coffee sales typically slow down. Expanding this lineup helps the company maximize its store traffic throughout the entire day.
Analysts recently raised their price targets for Starbucks following the company's latest earnings report. About half of the analysts rate the stock a buy, and the average target of $115 suggests the price could rise another 8%.
Starbucks has beaten expectations in its last two reports, a sharp change from a string of misses. It suggests management is finally getting a handle on its operations and setting targets it can actually hit.
| Expectation | |
|---|---|
| EPS | $0.71 |
| Revenue | $9.21B |
