New Starbucks CEO Brian Niccol’s decision to preannounce disappointing earnings is no reason to sell the stock, Jim Cramer said Wednesday. “I find it surprising that anyone thinks [these results are] surprising,” Jim said. “If you sell the stock today, you’re only selling it because you’re reacting to the press reports and the analysts, who are backward looking, not forward looking.” Shares of Starbucks were down about 1% after the struggling coffee chain issued preliminary quarterly results Tuesday night that were worse than Wall Street expected to see next Wednesday on its scheduled earnings date. Preliminary fiscal fourth-quarter revenue of $9.1 billion was down 3% year over year and below the analyst consensus of $9.38 billion, according to data provider LSEG. Earnings per share of 80 cents in the 13 weeks ended Sept. 29 was well short of the $1.03 estimate and fell 24.5% annually. Comparable-store sales , a key restaurant industry metric, fell 7% from the same period a year ago, marking the third negative quarter in a row. Analysts had projected a decline of 3.1%, according to FactSet. The Seattle-based coffee giant also said it won’t provide guidance for fiscal 2025, citing the CEO transition and the “current state of the business.” Niccol’s first day was Sept. 9 — so, the vast majority of the July-to-September quarter occurred before he started. Laxman Narasimhan’s rocky CEO tenure lasted roughly 18 months and ended in August. CFO Rachel Ruggeri served as interim chief until the former Chipotle boss Niccol started. Niccol’s surprise hiring in August — announced alongside Narasimhan’s ouster — was greeted with widespread praise from the Club and Wall Street, with Starbucks market capitalization soaring by $21 billion in a single day, to nearly $109 billion. It hovered around that level through Tuesday’s close. In general, there is a sense that analysts and investors will be patient with Niccol as he lays the groundwork for a recovery. Niccol had similar problems to address when he took over an embattled Chipotle in 2018. Nevertheless, the preliminary release Tuesday night underscored the challenges Niccol inherited in both the U.S., the company’s largest market, and China, an important avenue identified for long-term growth under previous leaders, especially three-time CEO Howard Schultz . “I’m 100% all in with Niccol because this man is an operator, not a promoter,” Jim said. Starbucks arguably is a more difficult situation than Chipotle in 2018, Jim acknowledged. “But Niccol is much better than when he took over in 2018,” Jim countered. SBUX .SPX 1Y mountain Starbucks’ 12-month stock performance versus the S & P 500. Starbucks saw a 6% drop in U.S. comparable-store sales in its fourth quarter, with a 10% decline in transactions partially offset by a 4% increase in the average price of orders. That year-over-year drop in comparable sales and transactions was even steeper than what was registered in Starbucks’ weak second and third-quarter results — a pair of reports that put Narasimhan firmly on the hot seat. At the time, Jim’s faith in then-CEO Narasimhan was particularly shaken after the January-to-March second quarter. In prepared remarks accompanying the preannouncement, Niccol reiterated that his initial focus is fixing Starbucks’ business in the U.S., where issues range from bottlenecks in mobile orders to perceptions that drinks are too expensive. “It’s our biggest business and we need to return it to growth,” Niccol said. “But we also have significant opportunities around the world,” he added. “Our team is focused on how we return Starbucks China to growth and getting all our international businesses performing again.” In China, Starbucks has been squeezed by lower-priced competitors as the world’s second-largest economy battles a prolonged period of sluggish expansion in the wake of the Covid pandemic. It was no different in the fiscal fourth quarter. Comparable-store sales in China dropped 14%, matching the third-quarter decline, as average ticket prices were down 8% and comparable transactions fell 6%. In the second quarter, comparable-store sales fell 11%. A bright spot in Tuesday’s release: The company said its board approved a 7% increase to its quarterly dividing payout, bringing it to 61 cents a share. That equates to a roughly 2.6% yield based on current stock prices. Niccol said he intends to share more details about his strategy and take questions on Starbucks’ earnings call next Wednesday evening. But in the prepared comments, he said he wants to refocus Starbucks as a coffee-first brand and community coffeehouse by improving the daily experience and career opportunities for baristas and addressing long and unpredictable wait times during the morning rush. “I believe that our problems are very fixable and that we have significant strengths to build on,” Niccol said in Tuesday’s release. “I’ve spent my career understanding, stewarding and building brands, and it’s clear the Starbucks brand is strong and enduring,” he added. “When we stay true to our core identity and focus on delivering a great partner and customer experience, our customers come — and importantly, they come back.” (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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A Starbucks logo at a location in New York on Aug. 17, 2023.
Gabby Jones | Bloomberg | Getty Images
New Starbucks CEO Brian Niccol’s decision to preannounce disappointing earnings is no reason to sell the stock, Jim Cramer said Wednesday.
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