What happened
Shares of Starbucks (SBUX -0.40%) were trading down 4.3% as of 1:36 p.m. ET on Monday. Investors grew uneasy following news that the company was suspending its share repurchase program.
So what
CEO Howard Schultz, who just today returned to the role after former CEO Kevin Johnson's retirement, outlined near-term challenges facing the company.
"Our company, like many companies, is facing new realities in a changed world," Schultz wrote in a letter addressed to employees and other stakeholders. "Pinched supply chains, the decimation caused by COVID, heightened tensions and political unrest, a racial reckoning, and a rising generation which seeks a new accountability for business."
Starbucks didn't repurchase any shares in fiscal 2021, ending Oct. 3, but had started to ramp up share buybacks again in the fiscal first quarter of 2022.
Overall, investors are most concerned about the company's halt of buybacks on top of weak guidance for fiscal 2022.
Image source: Getty Images.
Now what
The company is in a stronger position than it was a year ago. Global comparable-store sales increased by 13% year over year, which is much improved over the year-ago quarter's comps decline. But cost inflation and other headwinds are starting to pressure Starbucks' performance on the bottom line.
"Although demand was strong, this pandemic has not been linear, and the macro environment remains dynamic as we experienced higher-than-expected inflationary pressures, increased costs due to Omicron and a tight labor market," Johnson wrote in the fiscal first-quarter earnings release.
As a result of rising costs, management anticipates operating margin to drop a few percentage points this year. The pressure on near-term profits is weighing on the share price, but investors with a long-term focus could look at the drop in the stock price as a possible buying opportunity. Starbucks is still a top consumer brand that should bounce back.
