Starbucks Is Worth Watching

Starbucks stock (SBUX) has been having a rough time this year, especially since it has only gained 0.38% year to date. There has only been two months of trading this year which means that the company’s stock still has a chance, but it will be a tough road ahead. Even looking at the one year-chart it doesn’t muster enough confidence. Over a one year period the stock has gained only 2.2%.

The company’s earnings have been mixed in nature, and traders remain cautious on the outlook. That is evidenced by the fact that the stock has been stagnant over the past year. A change of plans with the CEO resigning isn’t helping the stock either. Even on the face of the CEO Howard Schultz resigning his post this coming April. A new CEO will mean different strategies and that could have a negative effect on the stock.

Mixed Earnings

For its fiscal first quarter of 2017 Starbucks reported that it had earned $0.52 per share. This was in line with expectations, because analysts were expecting that the company would earn at least $0.52 per share. The company meeting expectations on the EPS number is somewhat of a good thing, but it wasn’t able to lift bullish sentiment. The EPS number coming in-line it wasn’t all that bad, but the problem lied with the revenue number that was reported.

The revenue number came in below expectations and that really hurt the stock. Starbucks reported that it had earned $5.73 billion in revenue, compared to analysts expecting it to earn $5.85 billion. The company blamed the mixed earnings report on a season where a lot of many other restaurant retailers were greatly challenged.

Same Store Sales

As noted before the stock had languished throughout most of 2016, with the stock only gaining 2.2% in a one year period. The main concern that traders had was that same store sales were not encouraging. This concern really put a strain on the stock, considering that it went nowhere throughout 2016. The Starbucks stock even managed to underperform the S&P 500 which managed to gain at least 12% in 2016. Even if you compare the year-to date-metric of the stock, it still doesn’t look to good. While the S&P 500 returned 2.76% year to date, Starbucks had only returned 0.38% in the same time period.

Such a minimal gain doesn’t give a lot of confidence to investors that Starbucks is performing well. Same Store Sales for the quarter grew by 3%, which was way under the expectation that it would come in at 3.8%. The continual decline in same-store sales is a major issue that must be fixed before the stock can move higher.

Transition

The CEO Howard Schultz laid the groundwork for innovating Starbucks into a major coffee powerhouse. In 2014 he implemented new stores known as the “Reserve Roastery” and “Tasting Room”. Both of these stores were to bring in new exotic coffees and act as larger stores to serve the public. Under Schulz new programs such as mobile order and pay app were also introduced. The foundation is in place, but there will be a new CEO taking over the reigns of the company. The new person taking over the role of CEO will be Kevin Johnson. He is more of an operational strategist, as opposed to an innovator, so it remains to be seen if he will perform better. Maybe that is what Starbucks needs right now, an operational CEO to turn things around.

Trading Starbucks

There is a small glimmer of hope for traders and that is how the chart for the Starbucks stock has been acting. Over the last three trading sessions, the stock has bounced off an important low and is headed for a short-term reversal. That means that the outlook, according to the chart, has gone from a bearish sentiment to a neutral outlook.