Tear Sheet: Starbucks Corp. Leverage Expected To Remain Below Downside Threshold Despite Weaker Performance

The company reported traffic pressure across segments due to various factors, including cautious consumer spending habits, economic instability in the Middle East, and an uneven recovery in China. The main challenges in the U.S. were attributable to fewer visits from more occasional customers. Whereas the company's initial guidance indicated expanding margins this year, operating margin contracted by 240 basis points (bps) for the quarter. This contraction was mainly attributed to sales de-leverage due to weaker-than-expected top-line growth, higher wage expenses, and increased promotional activities, which were partially offset by pricing and in-store operational efficiencies. Notably, in 2023, weaker restaurant traffic was mainly driven by low-income consumers, which did not seem to affect Starbucks. This seems to have changed as of

...May 15, 2024 Starbucks' weaker-than-expected earnings reflect a challenging operating environment, resulting in weak traffic. The company reported traffic pressure across segments due to various factors, including cautious consumer spending habits, economic instability in the Middle East, and an uneven recovery in China. The main challenges in the U.S. were attributable to fewer visits from more occasional customers. Whereas the company's initial guidance indicated expanding margins this year, operating margin contracted by 240 basis points (bps) for the quarter. This contraction was mainly attributed to sales de-leverage due to weaker-than- expected top-line growth, higher wage expenses, and increased promotional activities, which were partially offset by pricing and in-store operational efficiencies. Notably, in 2023, weaker restaurant traffic was mainly driven by low-income consumers, which did not seem to affect Starbucks. This seems to have changed as of the last quarter. We have revised...

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