What happened
Shares of coffee chain Starbucks (SBUX 1.00%) gained slightly in September according to data provided by S&P Global Market Intelligence. That was against the backdrop of the S&P 500 losing almost 10% at the same time. Starbucks received renewed investor confidence after announcing a new CEO and a reinvention plan.
So what
Starbucks has been dealing with many challenges in light of shifting consumer trends and global economic pressure. CEO Kevin Johnson left last year after navigating the company through difficulties at the beginning of the pandemic, and former CEO Howard Schultz stepped in to lead while the company searched for a new chief executive.
The company finally announced Laxman Narasimhan as the new CEO at the beginning of September. He's a seasoned consumer goods executive, with former positions at PepsiCo, and most recently at Reckitt Benckiser Group.
On the heels of that announcement, Starbucks said it was launching a reinvention plan. After months of studying the terrain, Schultz's biggest revelation was that the company's previous strategy of its coffee shops being a "third place" for people to hang out together, after home and work, was falling short in today's digital age. Stores with large dining areas are outdated, and the new strategy will focus on Starbucks stores as a digitally connected space with a variety of omnichannel purchasing options.
The other parts of the plan are tied to improved workplace functionality, with new beverage-creation technology and better conditions for workers.
Management expects this shakeup to result in annual year-over-year comparable sales (comps) growth of 7% to 9%, 10% to 12% revenue growth, and 15% to 20% growth in earnings per share.
Now what
In the meantime, Starbucks has made a robust recovery from pandemic declines. In the 2022 fiscal third quarter (ended July 3), sales increased 9% year over year to $8.2 billion, with comps up 3%. There was particular strength in the North American market, where sales increased 13%. The international segment's sales declined 6% over last year, weighed down by closures in China, the company's second-largest market.
Starbucks opened 318 net new stores in the third quarter for a total of nearly 35,000, and it opened its 6,000th store in China in September.
Starbucks stock is still down 23% this year, and all of the changes it's going through make it look uncertain right now. The long-term picture still looks bright, but investors may want to hold off on buying until the company is more stable.
