Starbucks (SBUX -1.15%) stock is looking far from robust this year. Shares are down 35% through the first half of 2022, according to data provided by S&P Global Market Intelligence, compared to a 21% drop in the S&P 500.
That decline seems even worse when stacked up against peers in the restaurant and fast-food spaces. McDonald's stock is down just 8% this year, for example, and Chipotle Mexican Grill shares are also outperforming the coffee chain. Investors are more concerned about Starbucks' stock, given its unique operating challenges today.
The coffee giant said in early May that sales grew in the fiscal second quarter, with the 7% global increase coming from a nice balance between rising traffic and higher average spending. Profits are still rising, despite soaring costs for inputs, labor, and transportation.
Yet that earnings report also showed cracks in Starbucks' core growth model.
Profit margins have declined, falling to 13% of sales from 16% in the most recent quarter, for example.
And most of Starbucks' sales gains are coming from drive-thru and to-go orders. Management has been surprised by the scale of that shift away from in-store transactions, which has contributed to falling customer satisfaction levels as people spend less time in its cafes and demand quick, convenient grab-and-go options. Many Starbucks locations have seen "tremendous strain," executives said, from the post-pandemic change in how shoppers are using its stores.
That operating challenge is being amplified by two other investor concerns: turnover in the CEO spot and declining cash returns. Founder Howard Schultz has recently stepped back into the leadership position and is pushing for big changes, including a temporary halt on stock repurchase spending. Rather than buying back stock, Schultz is aiming to spend that cash on improving the business. Target investment areas include the online ordering platform and more drive-thru locations.
Those investments demonstrate the chain's willingness to cater to changing consumer tastes and should pay off over time. But there is still real concern that Starbucks is losing part of its competitive edge in an era where shoppers are placing less value on the in-store experience. Many competitors, including McDonald's, offer quick to-go beverage options and often at lower prices.
Starbucks' surest path toward protecting its market share in that environment is boosting customer satisfaction levels. Investors hoping to see a rebound in the stock should watch the next few earnings reports for signs of stabilization on that core metric.