Starbucks stock jumps 5% on earnings, but is it a buy?

Posted: 3 May 2022 7:24 pm

The coffee giant posted a solid quarter and the stock is down by more than a third this year. But Starbucks faces a slowdown in China and other obstacles, so the near term could be volatile.

Starbucks stock jumped 5% in after-hours trading today, after reporting quarterly results that were in line with expectations and, in some cases, even better.
That’s after a 36% stock price drop this year, which might make stock of the global barista look attractive to a lot of investors, particularly with founder Howard Schultz now in charge after the departure of president and CEO Kevin Johnson.
The stock may be a buy, based on the powerful brand name and reach. But the company’s quarterly report also points to multiple uncertainties just ahead.
Some of those are unique to Starbucks, while others impact the market as a whole. Here’s a look.

The numbers for Starbucks

The topline numbers in Starbucks’ latest quarters were solid. Adjusted earnings per share were just a penny below estimates. Revenue was up 17% while US same-store sales rose 12%.
But comparable store sales in China, Starbucks’ second biggest market, fell 23% as that country again expanded travel limits and lockdowns in response to COVID. More generally, the company is facing inflationary issues and supply chain delays.

Notably, the company suspended issuing guidance for the rest of the fiscal year, citing these uncertainties.

2 other Starbucks’ challenges

The stock has also lagged because Schultz, in one of his first moves, suspended its stock buyback program. Those tend to raise share prices, and of course, could return at some point. Schultz is expected to leave when a new chief is named in the fall.
Starbucks also announced Tuesday a $1 billion plan to raise employee wages and tips, and improve training, with most of the benefit going to stores not represented by unions. The company has been locked in an increasingly bitter struggle to avoid unionization. More than 40 stores have voted to unionize, according to NPR.
All these challenges suggest buying Starbucks’ stock now is a buy for the long term. There could be volatility as these issues run their course.
For a look at how Starbucks has performed over five years, see our dedicated guide.

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