Starbucks (NASDAQ:SBUX) Stock Looks Interesting After Venti-Like Selloff

Shares of coffee company Starbucks ( SBUX ) are down 16% year-to-date after posting one of the biggest quarterly losses. Consumers continue to hold their wallets tight amid inflation, and right now they’re unwilling to pay more than $6 for a coffee drink, no matter how fancy. While Starbucks has a turnaround plan to get the stock back down, it’s hard to say whether the company can execute on its plan under a CEO who isn’t named Howard Schultz. Still, while it’s easy to give up on SBUX stock after a venti-sized sell-off, I remain optimistic because I believe in the power of this storied brand.

Starbucks Feels the Force of Industry Headwinds

It’s certainly not just Starbucks that has struggled over the past two years. The average restaurant inventory has fallen due to inflation and changes in consumer eating habits. Still, the cost savings that can be had by eating in versus out appear to have increased as prices on certain groceries have dropped recently, particularly at your local Walmart (WMT) mall.

But with several fast food restaurants (QSRs), including Starbucks, offering generous promotions, combos, deals, freebies and value menus during the summer, the savings gap is expected to narrow over time.

Plus, it’s not hard to imagine that people eventually get tired of eating the “same old, same old” home-cooked food. And that’s not to mention that Starbucks is the ultimate “third place” where people go to be with others. You could argue that Starbucks’ ambiance is just as appealing to consumers as its delicious beverages.

A new store framework can make all the difference

As part of Starbucks’ turnaround efforts, the company is working to improve the store’s layout. The new store layout will not only be more accessible and convenient for customers with disabilities, but will also take advantage of improved lighting and sound systems.

Ignore optimal lighting and great acoustics if you like, but these factors are the difference between a great shopping experience and a mediocre one. By making the shopping experience more comfortable and accessible, Starbucks might just take the ball from the “third space” and run it into the end zone.

The company plans to have all of its corporate locations adopt the new store model. And while the new and improved shopping experience won’t create huge crowds overnight, I see such efforts as a great way to increase customer loyalty while also luring in old customers it may have lost in recent years. Creating a more welcoming environment is just one way Starbucks hopes to boost sales growth.

The coffee giant also hopes to improve service efficiency to reduce wait times for orders and lines in its stores, which can sometimes lead to customers taking their business elsewhere.

Getting more loyal customers to use the Starbucks app to order is one way the coffee giant is taking the friction out of the ordering process. Preparing Starbucks stores for peak hours and training baristas to use “simplified, more intuitive steps” when making drinks are other efforts Starbucks is targeting. And of course, introducing more automation and robotics behind the counter could be a big goal in the extremely long term.

Can Starbucks CEO Actually Deliver?

The company has a good strategic plan to work with, but only time will tell whether the current CEO, Laxman Narasimhan, can execute it effectively.

So far, he has not proven himself to be an effective leader of Starbucks. In fact, it’s arguable that he’s only one terrible quarter away from being shown the door. Either way, Starbucks’ problems seem more than solvable, whether it’s Mr. Narasimhan or someone else (perhaps Howard Schultz) at the helm by the end of the year.

As Starbucks improves the in-store experience, the company also hopes to save $3 billion over three years (starting in November 2023) by continuing its efficiency program, $1 billion of which will come in the form of optimized store formats.

Is Buying Starbucks Stock a Bargain, According to Analysts?

On TipRanks, SBUX stock comes in as a Moderate Buy. Out of 27 analyst ratings, there are nine Buys and 18 Hold recommendations. The average price target for SBUX stock is $88.29, implying an upside potential of 11.8%. Analyst price targets range from a low of $75.00 per share to a high of $112.00 per share.

The Core of Starbucks

Headwinds in the QSR industry seem temporary and short-lived. When they pass, Starbucks may finally have the resources to build a bottom. Industry headwinds are only part of the problem, however.

Fortunately, Starbucks plans to address the shortcomings of its old store layout while also trying to make everything more efficient. With a new store framework to work on, the company can make its stores feel warmer and more welcoming, as well as faster and more efficient. While CEO Laxman Narasimhan may be playing catch-up, he still has time to prove that he’s the right man for the corner office.

Finally, the brand’s strong customer loyalty and status as a “third space” make it a formidable player in the market. Despite current challenges, the enduring appeal of the Starbucks brand provides a solid foundation for potential recovery and long-term growth.

Revelation