What Happened:
Shares of coffeehouse chain Starbucks (NASDAQ:SBUX) fell 17% in the morning session after the company reported first-quarter results. Its revenue and EPS unfortunately missed analysts' expectations as its same-store sales declined by 4% (driven by a 6% decline in volumes offset by a 2% increase in prices). Starbucks's demand in China was especially weak as its same-store sales fell 11%. Management highlighted its disappointment with the results and called out a challenging operating environment. Overall, this was a bad quarter for Starbucks.
Following the results, Deutsche Bank analyst downgraded the stock's rating from Buy to Hold and lowered the price target from $108 to $89.
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What is the market telling us:
Starbucks's shares are not very volatile than the market average and over the last year have had only 2 moves greater than 5%. Moves this big are very rare for Starbucks and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 7.3% on the news that the company reported fourth-quarter results that beat analysts' revenue expectations based on higher-than-expected same-store sales. Gross and operating margins were ahead, leading to an EPS beat. Given some of the mixed sentiment around the stock and uncertainty with regards to consumer spending, this was a welcome result.
Additionally, as the quarter was the last of this fiscal year, Starbucks gave guidance for the next fiscal year that was largely in-line to slightly ahead of expectations. The standout was EPS guidance, which was comfortably ahead. Overall, this was a solid quarter for Starbucks.
Starbucks is down 21.4% since the beginning of the year, and at $73.69 per share it is trading 35.7% below its 52-week high of $114.56 from April 2023. Investors who bought $1,000 worth of Starbucks's shares 5 years ago would now be looking at an investment worth $950.33.
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