Starbucks Earnings Preview: Can Stock Mount Sentiment Shift? (SBUX)

Starbucks Corporation (SBUX) is set to unveil its fourth-quarter and full fiscal year 2025 financial results after the market closes. A conference call will follow, providing analysts with critical insights into the company's performance and strategic direction. As the coffee giant grapples with evolving consumer preferences and persistent economic headwinds, all eyes are on whether CEO Brian Niccol's turnaround efforts are truly bearing fruit.

Analysts are bracing for a mixed bag. Consensus estimates point to earnings per share (EPS) of $0.55 for the quarter, a stark 31.25% decline from the $0.80 reported in the same period last year. Revenue is projected to reach $9.35 billion, a modest 3.07% increase year-over-year. These figures highlight the pressure Starbucks faces in maintaining growth amidst a challenging economic landscape.

The third quarter of fiscal 2025 provided a sobering glimpse into the challenges Starbucks faces. Global same-store sales declined by 2%, marking the sixth consecutive quarter of declines. Adjusted EPS plummeted 46% year-over-year to $0.50, despite a 4% increase in revenue to $9.5 billion. While Niccol insists the turnaround is “ahead of schedule,” these numbers paint a less optimistic picture. A further worrying sign is the predicted 30% drop in EPS, which could shake market confidence.

Adding a layer of complexity is the company's dividend policy. The recent announcement of a 15th consecutive annual dividend increase, raising the quarterly payout from $0.61 to $0.62 per share, is a double-edged sword. While it demonstrates a commitment to returning value to shareholders, it also raises questions about the company's capital allocation strategy, especially given the current financial headwinds. Are these funds better used to invest in innovation, technology or even other strategic acquisitions given the projected earnings decline?

While most analysts focus on the immediate challenges facing Starbucks, it's crucial to consider the potential for a significant rebound. The market may be underestimating the long-term value of the Starbucks brand and its loyal customer base.

The market may be too focused on the short-term EPS drop and ignoring the potential for future growth driven by strategic investments in technology, personalized experiences, and new product offerings. Furthermore, Starbucks' global presence provides a buffer against regional economic downturns, offering diversification and resilience. Starbucks has a proven track record of reinvention, it would be unwise to write them off completely.

One should pay close attention to several key metrics when the company reports earnings. Same-store sales growth, particularly in the US and China, will be a critical indicator of the company's ability to regain momentum. Management's commentary on operating margins and cost-cutting initiatives will provide insights into the company's efforts to improve profitability. Finally, any updates on the company's long-term growth strategy, including its plans for digital innovation and international expansion, will be closely scrutinized.

Starbucks' upcoming earnings report is not just about the numbers; it's about the narrative. The stock has fallen 7.31% this year, against a backdrop of markets setting high after high. Can the company convince that its turnaround strategy is gaining traction and that it can navigate the challenges ahead? Or will the report confirm the fears of those who believe that Starbucks' best days are behind it? The answer to these questions will likely determine the direction of the stock in the coming months.

The average price target for SBUX remains significantly higher than the current share price, suggesting that analysts, on average, believe the stock is undervalued. However, these targets are likely to be revised following the earnings release, depending on the company's performance and outlook.