Risk, returns & timeframes illustration
6 min read
November 7, 2023
by
Belinda Nash

Starbucks’ shares soar nearly 14% after earnings beat

As men’s mental health takes centre stage in the great Movember mo-grow, it seems that stress in the US has Americans reaching for their quick fix comfort hit. And one company peaking in a post-pandemic boom of their own is Starbucks.
6 min read
November 7, 2023
by
Belinda Nash

Starbucks’ shares soar nearly 14% after earnings beat

As men’s mental health takes centre stage in the great Movember mo-grow, it seems that stress in the US has Americans reaching for their quick fix comfort hit. And one company peaking in a post-pandemic boom of their own is Starbucks.
6 min read
November 7, 2023
by
Belinda Nash

Starbucks’ shares soar nearly 14% after earnings beat

As men’s mental health takes centre stage in the great Movember mo-grow, it seems that stress in the US has Americans reaching for their quick fix comfort hit. And one company peaking in a post-pandemic boom of their own is Starbucks.
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Stress spikes in the US: what are they most worried about and is Starbucks bringing comfort? 😩 This November CEO of the American Psychological Association (APA) Dr Arthur Evans Jr said Americans may have started to move on from the ‘collective trauma’ of COVID, but an ‘aftermath remains’, with more Americans reporting sustained levels of stress

The annual Stress in America 2023 survey conducted in August and released last week found that nearly a quarter of American adults rated their stress 8 out of 10 and above. And for parents, nearly half said their daily stress levels were ‘completely overwhelming’. Stress levels for adults aged between 18-45 is the highest, with around 70% saying the economy is a ‘major stressor’ for them. The most significant jump in stress levels since before the pandemic was for Millennials aged between 34-44. 

So, are stressed Americans splurging on Starbucks? 🥤 Since the launch of their fall menu this August, Starbucks (SBUX) reported record-breaking weekly sales, which CEO Laxman Narasimhan attributed to their now 20-year-old comfort beverage, Pumpkin Spice Lattés. And according to Deloitte Insights, when times are tough people are as likely to buy small treats to soften economic blows - called the Lipstick Effect - as we are to ‘eat and drink our treats’, saying when we splurge to feel better, we reach for food and beverages:

‘Globally, consumers are almost three times more likely—and four times more likely in the United States—to say their recent splurge purchase was food and beverage compared to personal care. Men, in particular, make up 57% of the global splurges in food and beverage, while spending 60% more than women.’

Bucking up causing stocks to soar. 📈 This quirk of human behaviour may have helped America’s leading coffee shop chain Starbucks to beat Wall Street estimates in their fourth quarter to end their fiscal year:

  • Starbucks stock has percolated up 13.7% since the coffee company reported their Q4 earnings last week from US$91.30 to US$103.82 making them a top performer in the S&P 500 and lifting their market cap to US$118.728 billion
  • Their stock is up nearly 15% since one year ago, while their year-to-date (YTD) is up nearly 3% after recording the year’s high of US$114.46 in May, dropping 9.4% to today’s stock price but closing a record fiscal year for the company
  • Americans reached for their hot and iced coffees in the last quarter helping to boost North American sales 8% 
  • Net earnings per diluted share jumping 39% to US$1.06 against analysts’ expectations on 97 cents per share, and revenue was up 11% from the same time last year
  • While Starbucks has opened 6,800 China locations, a 13% increase to become the company’s second-largest market, China sales were lower than expected at just 5% and were still below pre-pandemic levels in the country that may yet be rattled from the COVID comedown

Seven doors shut and hundreds more open. 🚪 Despite joining the corporate exodus and shutting doors on seven San Francisco downtown stores (hardly a dent compared to their more than 38,000 locations worldwide), Starbucks is accelerating existing store renovations and adding more drive-through locations and online ordering to serve ‘on-the-go’ customers, as well as boosting baristas’ pay - while courting controversy. They’ve also pledged to double rewards points for their 75 million members while also carving off US$3 billion from budgets through supply chain efficiencies.

Comparing coffee stocks… sort of ☕ 

Separating the beans from the grind when it comes to coffee stocks is vague at best. Starbucks is as much about serving weird drinks to people working-from-free-wifi as it harks back to their more than 50-year-old Seattle origin story, which was to brew good coffee. So comparing apples with… erm… apple croissants:

  • Farmer Bros (FARM) is the coffee roaster and supplier to Starbucks with a market cap of just US$52.984 million. Their share price is sitting at just US$2.80, down a not-so-frothy 48.7% from one year ago, and 39% YTD. This is a bruising 92.4% tumble from their all time high share price of US$37.00 in April of 2017. The company, which reports their Q1 earnings this week, wrapped up the past year’s quarterly reporting cycle noting that persistently high coffee prices weakened their profitability, with hopes their CEO stepping down and ramping up AI capability will help streamline operations
  • The J. M. Smucker Company (SJM) manufactures goods from pet food to coffee, and is the supplier of Ben Affleck’s beverage of choice, Dunkin’ coffee, which has more than half the number of coffee shops in the US compared to Starbucks - Dunkin’ has 9,370 US stores compared to Starbucks’ 15,396 US stores. The company has a market cap of US$11.535 billion, and since November last year their stock has fallen 24.4% while plummeting an icy 29% YTD to US$112.85.47 following their stock peak of $162.59 on 6 January.
  • Keurig Dr Pepper (KDP) has among their beverage offerings ready-to-drink and specialty  coffee, and holds a market cap of US$43.3 billion. Since November 2022, they’ve seen their stock fall 17.4%, with a drop of nearly 13% YTD, landing at today’s price of US$30.95 - down 20% from their one year high of US$38.74 in December last year
  • Restaurant Brands International (QSR) has among their brands Tim Hortons, which lists among the menu items specialty espresso-based hot and cold drinks. Their current market cap is US$30.092 billion with the company’s one year stock price up 11% and their YTD up 3.8%. Their stock today sits at US$66.98 down 13.8% from their US summer July high of US$77.67.

Could coffee beans cost more if oil prices surge? 😩 

Are things about to get even stressier? Without including the supply and demand woes of dairy and coffee commodity pricing, to get coffee’s green beans into the hands of coffee roasters, we need ships. Beans are sourced from the ‘Bean belt’ - countries, including Brazil, Colombia, Guatemala, Ethiopia, Vietnam and Indonesia - which relies on shipping. And when shipping costs more, coffee costs more.

But don’t push the panic button yet. 🔴 Last week the World Bank cautioned that if the Israel-Hamas war escalates to cause ‘medium disruption’, it could prompt a hike in oil prices to between US$140 and US$157 per barrel - ‘comparable to the Arab oil embargo in 1973’. In their Commodity Markets Outlook October report, the World Bank highlighted that the conflict had so far caused ‘modest impacts’, noting that global economies are more robust today than in 1973, and they projected oil prices to come down to around US$80 a barrel, with commodities generally settling by 2025.

Men's mental health mo glow up

While men in the US may be sipping their cup of Joe while ‘staching through the snow - and Starbucks is firmly onboard men’s mental health - Downunder, we're sending props to Kiwis backing the Movember mo-grow and supporting men’s path to wellbeing. 🦸

Like this? 👍 Then you might like: Yum!, DoorDash & Starbucks take the bite out of inflation

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Belinda Nash
Finance writer
Linkedin

We’re not financial advisors and Hatch news is for your information only. However dazzling our writing, none of it is a recommendation to invest in any of the companies or funds mentioned. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. We’ve done our best to ensure all information is current when we pushed ‘publish’ on this article. And of course, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.

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