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Chapter 1: What is the main topic discussed in this episode?
Earnings season has begun and Starbucks is back. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoyum, joined by Rachel Warren and Lou Whiteman. We have really gotten into earnings season. We're in kind of the meat of it over the next couple of weeks. And the big report this morning was Starbucks. Rachel, what did we learn?
So, Starbucks, it was a quarter of mixed performance, which I think is something we've seen for a while, but there was some improvement in a few key areas. We saw some signs of turnaround in consumer traffic. They actually beat on revenue, and this was even as profit was below what analysts were hoping for. So, global and U.S.-comparable store sales increased by 4%.
year over year, and that was a significant return to growth that was driven by a 3% increase in traffic. So this is some indication that customers are actually returning to cafes, that Starbucks back to Starbucks strategy might be working. Net revenue was up about 6% year over year. Same store sales in China grew 7%. And this is something that's notable.
I mean, this is the second largest market for Starbucks. It's been an area in which they have been struggling. I think one thing that is clear from their results this quarter and in recent ones is the company is really sacrificing immediate profit for long-term growth. They're investing in wages, in their labor force, and in technology in a bid to get back to more sustainable growth.
One of the things that I will note, in China specifically, the company's in the process of entering a joint venture with Weiyu Capital to operate its retail presence in China. So, they'll reduce their direct stake. They're going to turn to a licensing model while maintaining brand control. It's a more asset-light approach.
It's one that they have turned to in a lot of their newer international markets in Europe, in the Middle East, in Africa. They're viewing fiscal 2026 as a transition year. And I think that's something that's important to note. This next year, they're looking to open between 600 to 650 net new company-owned and licensed cafes. And this is also as they're shuttering about 400 U.S.
locations coming out of 2025. So it's a time of big shifts and changes for the business. Not really anything to write home about, but we are starting to see some early signs of improvement that investors should pay close attention to.
Lou, what stuck out to you?
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Chapter 2: What were the key insights from Starbucks' latest earnings report?
Rachel mentioned the same-store sales growth. That's always something that you look at with retail operations like this. They were negative from March of 2024 through two quarters ago. Now, we're at least positive. All those comps are a little easier than they were a year or two ago.
Yeah, there's nothing really to complain about in this quarter. I think the business is getting healthier, and I think that's a good thing. As an investor, I struggle to see why I should be excited about this or why I should care. For one thing, as Rachel noted, they are dumping the fastest-growing, most interesting part of this business. Now, for China, I know it's a licensing agreement.
They can still asset-light. But China, international revenue is up 10%, North America revenue up 3%. Which part are you getting rid of again? Again, maybe getting rid of isn't fair. Travis, is 3% comp store sales worth investing into? Is even 5%? Is 3% revenue growth really reason to get excited?
They're basically back to where they were two years ago. Yes, this was positive, but we're going from a negative comp to a positive comp. You add those two together, and you're basically where you were in 2023.
Here's what I didn't hear. which is what I think as an investor I want to hear. Again, I'm not shorting this either. I think the business is doing what they should. But what is your plan for long-term market-beating growth? I think that's really hard for Starbucks to do, especially as they go asset-light international. It used to be international as a growth story. They can still, yes, benefit
from China and all of that, but you are neutering some of that long-term international growth story. I think it's so important to separate. I know this is the opposite by what you know, and there's room for everything, but just because you like the company or just because you think the company is doing the right thing, that doesn't make it a winning investment.
Starbucks very much falls into that camp right now. I like what they're doing. I think Nichols is doing the right thing. As an investor, I see other opportunities for market-beating growth outside of Starbucks, which is a very mature coffee retailer.
I'll just put some numbers behind this. On a trailing basis, the price-to-earnings multiple is almost 60. Even on a forward basis, we're looking at a price-to-earnings multiple of 36. This could be a phenomenal business, but if it's going to be growing at 5%, which they've done over the last three years, you probably don't want to pay that kind of multiple.
You want to pay more like 10, 15 times earnings. Is that the way to think about it? This can be a phenomenal business, but it's a steady business. It's not a high-growth business, and it isn't worth paying that premium?
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Chapter 3: How is Starbucks addressing its challenges in the Chinese market?
Where's your head at? Because this does look like a company that's maybe turning a corner operationally. But like Lou said, the price maybe isn't quite as compelling as it was.
Yeah, I agree with Lou on that. I don't think the price is nearly as compelling as it was. And Starbucks is kind of in a difficult position right now, because if they don't invest in their growth story and the way that they are doing so aggressively, they are going to continue to fall behind the competition. And that's been one of the key issues they have faced in recent years.
And that's evidenced by the fact that you'll profits are down high double-digit percentage year over year. They're really putting profits on the back burner to focus on that growth story right now. I think in the short term, that's the right call.
I think if you're an investor looking at this stock, you have to believe that they are going to be able to really successfully execute this turnaround and do so in a meaningfully profitable way. I think we're maybe starting to see the very early signs of that. I mean, some of those growth numbers I talked about earlier, it was some of the first growth we'd seen on those metrics in a
But I think it's still very, very early days for this strategy. So I would personally proceed with caution.
For today, the market does seem to like what they saw, stocks up about 4% early in trading on Wednesday. When we come back, we're going to talk about another solid earnings report from General Motors. What's going on there? You're listening to Motley Fool Money. Welcome back to Motley Fool Money.
Big earnings report from General Motors, one of those companies that's generally unloved by the market. Tesla gets all of the attention in the auto business. Guess what? General Motors growing faster than Tesla today. They're also doing so very profitably. Stock was up about 7% in response to earnings yesterday. Rachel, what's stuck out to you?
First of all, net income came in at about $2.7 billion for the fiscal year. That was down from $6 billion a year ago. That type of declining growth is something we've been seeing for them for the last couple of years. There's some good reasons for that. A huge driver of that was the net loss they reported in Q4 of about $3.3 billion.
That was driven by over $7.2 billion in special charges, primarily for realigning their EV capacity to meet lower-than-expected consumer demand.
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Chapter 4: What are the implications of Starbucks' investment strategy for long-term growth?
To Mary Bar's credit, I think that that's what they're doing. I think it was a fine quarter. It's a bounce back. It's a tough market. When times are good, it's a single-digit gross margin business most of the time. I don't understand necessarily the excitement, but I don't... They're doing very well with what they do.
This is definitely not a high-growth company, but a year or so ago, they were trading for four or five times earnings. At some point, if they can maintain that profitability, the narrative a few years ago was that they were done for because of companies like Tesla. Speaking of their progress, Lou, one of the things that stuck out to me is,
They have made a lot of vague announcements about their autonomy strategy. They actually put something out that said that they were going to be hands-off and eyes-off with the Cadillac Escalade in 2028. I don't know if that's calendar 2028 or model year 2028, which may come out a little bit earlier.
That's at least getting them to the point where they're not only matching what FSD can do today, but even taking that to the next level. Is that a big deal? Is that going to be par for the course for all these companies? Or how should we think about that? Because it seems like GM at least isn't falling behind when it comes to autonomy.
My favorite part of this is, the truck is going to glow turquoise when it's on. All the cars on the road will be able to see it, which is good. Look, eyes-off is good progression. And no, this isn't just robo-taxis. This is not always on. The car will decide when it feels comfortable enough to do it. This is slow evolution, not amazing. They announced this back in October.
I know they're using Nvidia systems. I know they have some of the software baked in. Not the Nvidia software, but Nvidia chips. There's a lot of off-the-shelf here. It is their secret sauce, but I think the whole world is moving in this direction. I don't know if it matters if you get there in 2028 versus 2030. Just like, look, Tesla was years ahead in announcing full self-driving.
Did that really work against GM and where they are now? No. I think the battle of press releases is one thing, but I'm much more interested in seeing these goals get hit over time. I think everyone's getting there.
Rachel, is autonomy a big deal? And then the other thing I wanted to bring up was the buybacks. They announced another $6 billion worth of buybacks. They're going to just continue. They're buying back somewhere between 10% and 15% of their shares outstanding every single year. You would think eventually that should be good for shareholders, but it isn't necessarily.
Like Lou said, been a market beater over time.
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