Editor’s Note: Generally we do not celebrate coming hardship for anyone. Americans will be affected by this if The Economic Ninja and Zero Hedge are correct. With that said, bad coffee by a woke company could only head in the negative direction eventually. That eventuality may be upon them. Here’s Tyler Durden at Zero Hedge for more…
Starbucks shares plummeted by 16% during the early cash session, approaching the -16.2% level last seen during the Covid crash. If intraday losses surpass 16.2% and remain above this level at closing, it would mark the company’s worst single-day loss since the Dot Com crash in early 2000.
“Starbucks reported what’s perhaps the worst set of results of any large company so far” this quarter, analyst Adam Crisafulli of Vital Knowledge wrote in a note. William Blair downgraded the coffee chain, citing last quarter’s “stunning across-the-board miss on all key metrics.”
Starbucks reported a 4% drop in same-store sales in the second quarter compared with the same period last year, while analysts tracked by Bloomberg were expecting growth. In China, same-store sales plunged 11%. The company’s top geographic segments are showing a pullback in consumer spending.
On Tuesday evening, CEO Laxman Narasimhan started the earnings call with investors by clarifying his unhappiness with last quarter’s results.
“Let me be clear from the beginning. Our performance this quarter was disappointing and did not meet our expectations,” Narasimhan said.
He said major headwinds originate from a “cautious consumer,” adding, “A deteriorating economic outlook has weighed on customer traffic and impact felt broadly across the industry.”
Here’s a snapshot of the second quarter’s earnings results (list courtesy of Bloomberg):
- Comparable sales -4%, estimate +1.46% (Bloomberg Consensus)
- North America comparable sales -3%, estimate +2.05%
- US comparable sales -3%, estimate +2.31%
- International comparable sales -6%, estimate +1.36%
- China comparable sales -11%, estimate -1.62%
- Adjusted EPS 68c, estimate 80c
- Net revenue $8.56 billion, estimate $9.13 billion
- Operating income $1.10 billion, -17% y/y, estimate $1.35 billion
- Adjusted operating margin 12.8%, estimate 14.5%
- Operating margin 12.8%, estimate 14.4%
- North America operating margin +18%, estimate +19.5%
- International operating margin 13.3%, estimate 15.2%
- Channel development operating margin 51.7%, estimate 43.6%
- Average ticket +2%, estimate +2.41%
- North American average ticket price +4%, estimate +4.15%
- International avg. ticket -3%, estimate +0.1%
- North America net new stores 134, estimate 144.33
- International net new store openings 230, estimate 429.23
- Comparable transactions -6%, estimate -0.27%
- North America comparable transactions -7%, estimate -1.86%
- International comparable transactions -3%, estimate +1.37%
Goldman analysts Eric Mihelc and Scott Feiler told clients, “Expectations were for a clear sales miss and a modest EPS miss, but both came worse than the lowered bar.”
They added, “The miss was across geography and was as bad, if not worse, than worst fears.”
Other Wall Street analysts shared the same gloom and doom about the coffee chain (list courtesy of Bloomberg):
Deutsche Bank analyst Lauren Silberman cuts Starbucks to hold from buy
- Says the “challenging” results was a sign “headwinds are more pervasive and persistent than we expected, and we have limited visibility into the pace and magnitude of a recovery”
- Had thought comparable sales deceleration in the US was more transitory and isolated to a specific cohort
- However, with the decline in 2Q traffic and what seems to be limited improvement from Lavender and Spicy Refreshers, Silberman sees it being difficult to “underwrite a meaningful reacceleration,” which is key to the bull case
William Blair, Sharon Zackfia (cuts to market perform from outperform)
- After healthy demand over the past three years, Zackfia says the “tide has turned quickly,” with Starbucks posting the weakest traffic performance outside the pandemic or Great Recession
- China now “looks more fragile,” with comparable sales down 11%, and even Starbucks Rewards members “took a rare dip,” she adds
Jefferies, Andy Barish (hold)
- There was a “notable” miss on US and international comparable sales as well as EPS, and Barish says there is “no easy fix in sight to reaccelerate SSS near-term”
- Notes that international comparable sales was “similarly weak,” with traffic and comparable transactions both declining; China’s comparable sales miss and Middle East volatility more than offset positive comps seen in Japan, APAC and Latin America
- PT cut to $84 from $94
Citi, Jon Tower (neutral)
- Starbucks is “putting a lot of oars in the water to try and paddle” its way back to a stable comparable sales outlook that investors would be willing to underwrite
- However, Tower expresses concern that there is not enough “coxswain keeping oarsmen working in unison/with accountability”; adds that it ignores the “true leak in the bottom of the boat,” flagging broad consumer pushback to cumulative transaction growth and the value equation
- Notes China store margins are still in the double digits and the segment is profitable despite top-line declines
- PT cut to $85 from $95
Cowen, Andrew Charles (hold)
- “We believe 2024 guidance has been derisked as we model 0% NA comps & 3% EPS growth, the high end of the range”
- Expects shares to be in a “holding pattern” as Starbucks restores credibility while competition and tough macroeconomic conditions present headwinds
- PT cut to $85 from $100
Bloomberg Intelligence, Michael Halen and Jennifer Bartashus
- “Starbucks slashed fiscal 2024 same-store sales, revenue and EPS guidance and lacks a cogent plan to boost demand”
- “We believe several initiatives, including targeting overnight sales, dozens of new products and a four-week mobile- app upgrade cycle are overkill — a distraction unlikely to boost traffic”
On Tuesday, a similar story occurred at McDonald’s when the burger chain reported lower-than-expected quarterly sales growth.
Notably, working-poor consumers are pulling back spending in a period of stagflation (read here & here).
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
