New Starbucks CEO Brian Nicol’s decision to pre-announce unexpected earnings results is not a reason to sell stock, Jim Cramer said Wednesday. “It’s surprising that some people think[these results]are surprising,” Jim said. “If you sell your stock today, you’re selling because you’re reacting to negative press and analysts rather than positive,” the struggling coffee chain said Tuesday night. Starbucks stock fell about 1% after the company released preliminary quarterly results, which were worse than Wall Street expected when the company’s earnings are due next Wednesday. Preliminary fourth-quarter revenue was $9.1 billion, down 3% from a year earlier and below analyst consensus of $9.38 billion, according to data provider LSEG. Earnings per share for the 13 weeks ending Sept. 29 were 80 cents, well below expectations of $1.03 and down 24.5% annually. Same-store sales, a key indicator for the restaurant industry, fell 7% year-on-year, marking the third consecutive quarter of decline. Analysts had expected a decline of 3.1%, according to FactSet. The Seattle-based coffee giant also said it would not provide guidance for fiscal 2025, citing a change in CEO and the “current state of the business.” Mr. Nicol’s first day was September 9, so the majority of the July-September quarter occurred before Mr. Nicol took over. Laxman Narasimhan’s shaky tenure as CEO lasted about 18 months and ended in August. CFO Rachel Ruggeri served as interim chief until Nicol, Chipotle’s former president, took over. Mr. Nicol’s surprise hiring in August, announced at the same time as Mr. Narasimhan’s firing, was widely praised by the club and Wall Street, and Starbucks’ market capitalization soared by $21 billion in one day to nearly $109 billion. . It remained around that level until Tuesday’s close. There is generally a sense that analysts and investors will be patient with Mr. Nicol as he lays the foundations for a recovery. Nikkor had to deal with similar issues when he took over the troubled Chipotle in 2018. Nevertheless, Tuesday night’s preliminary release highlighted the challenges Nikkor inherited both in the U.S., the company’s largest market, and in China, a key path to long-term growth. Under previous leaders, especially Howard Schultz, who served as CEO three times. “I agree with Nicole 100% because this guy is an operator, not a promoter,” Jim said. Jim acknowledged that Starbucks is probably in a tougher spot than Chipotle in 2018. “But Nicole is a lot better than when she took over in 2018,” Jim countered. SBUX .SPX 1Y Compare Mountain Starbucks’ 12-month stock price performance to the S&P 500. Starbucks’ fourth-quarter U.S. same-store sales declined 6%, with a 10% decline in volume partially offset by a 4% increase. At the average price of the order. The year-over-year declines in comparable sales and transactions were even larger than those recorded in Starbucks’ weak second and third quarter results. These two reports have definitely put Narasimhan in the spotlight. Jim’s confidence in then CEO Narasimhan was particularly shaken after the January-March second quarter. In prepared remarks accompanying the pre-announcement, Nicol said the initial focus will be on fixing Starbucks’ business in the U.S., where issues range from mobile ordering bottlenecks to the perception that drinks are too expensive. He repeated that there was something special about it. “This is our biggest business and we need to get it back to growth,” Nichol said. “But we also have huge opportunities around the world,” he added. “Our team is focused on how to get Starbucks China back on track for growth and get all of our international businesses back on track.” Starbucks has been squeezed by lower-priced competitors as it battles a prolonged economic downturn following the virus pandemic. That didn’t change in the fiscal fourth quarter. Same-store sales in China fell 14%, matching the decline in the third quarter as average ticket prices fell 8% and comparable transactions fell 6%. Same-store sales fell 11% in the second quarter. A bright spot in Tuesday’s release: The company announced that its board of directors approved a 7% increase in its quarterly dividend to 61 cents per share. Based on the current share price, this equates to a yield of approximately 2.6%. Nicol said he plans to share more details about the strategy and take questions on Starbucks’ earnings call next Wednesday night. However, in prepared comments, he said that by improving baristas’ daily experiences and career opportunities, and addressing long and unpredictable wait times during the morning rush, the coffee-first brand and community coffeehouse He said he wants to refocus on Starbucks. “We believe that our problems are very solvable and that we have great strengths to build upon,” Nicol said in a release Tuesday. “I’ve spent my career understanding, managing and building brands, and it’s clear to me that the Starbucks brand is strong and enduring,” he added. “If we stay true to our core identity and focus on delivering a great partner and customer experience, customers will come and, importantly, they will come back.” (Jim) – Cramer’s Charitable Trust is long SBUX. See here for a complete list of stocks.) 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The Starbucks logo at a store in New York on August 17, 2023.
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New Starbucks CEO Brian Nicol’s decision to pre-announce unexpected earnings results is not a reason to sell stock, Jim Cramer said Wednesday.
