Starbucks Stock Falls On Weak 2020 Fiscal Outlook

Starbucks Corporation’s weaker-than-expected forecast for its fiscal 2020 earnings Wednesday triggered a 3% drop in premarket trading, which was reduced to 0.6% at the end of the trading day. Its stock price stood at $96.11 after regular hours and $95.95 in extended trading.

This gloomier outlook comes after Starbucks handily beat third quarter earnings estimates and boosted its 2019 outlook in July. Starbucks’ stock rose over 8% on July 26 after it reported upbeat fiscal 2019 Q3 results. It reported a 9% sales boost year-on-year to $1.33 billion while operating profit rose 15%.

Statements made by CEO Kevin Johnson in August that Starbucks isn’t seeing any signs of an economic slowdown in the United States also added to the confusion as to why Starbucks was now warning to expect weaker-than-expected fiscal 2020 earnings.

The brief turmoil in Starbucks’ stock Wednesday sprang from unexpected statements made by CFO Pat Grismer at Goldman Sachs’ Global Retailing Conference. Grismer said Starbucks expects fiscal 2020 earnings per share (EPS) to be below its “ongoing growth model of 10%.”

Grismer said the reason for the disappointing outlook was due, in part, to one-time tax benefits that eventually transformed into a headwind for fiscal 2020 earnings growth. He also said Starbucks decided to purchase more than $2 billion worth of shares in fiscal 2019 instead of fiscal 2020.

Grismer said there should be no cause for concern about Starbucks operating performance. He also reiterated Starbucks’ guidance for fiscal 2019 that sees earnings per share range from $2.80 to $2.82.

“But again, I want to reinforce that our growth-at-scale agenda is delivering against our expectations,” said Grismer.

“I would say that we’re firing on all cylinders from an operating performance perspective with the focus and discipline necessary to drive growth at scale for a company like Starbucks and our long-term double-digit EPS growth model is fully intact.”

“While calling out EPS adjustments like this can raise questions among investors, I’m encouraged that the core operating business targets (revenue growth 7%-9%, operating income 8%-10%) are intact, and still see several paths to at least high-single-digit EPS growth in FY20,” said RJ Hottovy, an analyst at global financial services firm, Morningstar Inc.

Starbucks has kept generating noteworthy returns over the past year and is up 175% over the last five years. Starbucks’ stock is up 52% year-to-date.