Starbucks shares lag S&P 500 despite recent sales recovery

Starbucks shares are down 16% over the last five years, a period in which the S&P 500 index rose 75%, according to data cited in a report by Douglas A. McIntyre of 24/7 Wall St. The underperformance follows a period where the company’s rapid expansion began to stall, with store counts growing from approximately 16,000 in 2016 to 38,000 by 2022.

McIntyre notes that while comparable store sales have begun to grow after a period of decline, this improvement has not been sufficient to reverse the stock's long-term slide. In the most recent quarter, comparable store sales rose 7.9%, providing some momentum for the shares. However, total revenue for that quarter was flat at $9.3 billion. McIntyre describes this progress as insufficient for sustainability, suggesting that the current trajectory does not guarantee a lasting turnaround.

A significant factor in the stock's weakness is the change in ownership structure in China. Boyu Capital acquired a 60% stake in the company's Chinese operations, while Starbucks retained a 40% interest. Under the new arrangement, Starbucks continues to own and license its brand and intellectual property to the joint venture. The venture has set a goal to expand from its current 8,000 stores to 20,000 locations. McIntyre questions whether a new controlling shareholder can achieve this growth, pointing out that local competitor Luckin Coffee already operates 35,000 stores worldwide, most of which are located in China.

Investors have also scrutinized the leadership changes at Starbucks, specifically the appointment of CEO Brian Niccol, who previously led Chipotle. Since taking over, Niccol has implemented several operational changes, including closing underperforming locations, instituting a staff dress code, making personnel cuts, removing low-performing menu items, and working to reduce customer wait times. Despite these measures, shareholders have viewed the initiatives as superficial adjustments rather than structural fixes. Consequently, the stock has fallen 10% over the last month.

The divergence between Starbucks' performance and broader market gains highlights a persistent skepticism among investors regarding the company's ability to end its five-year stock slide. While recent quarters show signs of operational improvement in sales metrics, the combination of flat revenue and high competition in key markets like China has kept pressure on the share price. McIntyre's analysis suggests that until these underlying issues are resolved, investor confidence may remain limited.