But today, news hit that the coffee chain will go ahead with a round of layoffs, as it reorganizes the business. More news on those developments are still to come, but there are a few takeaways to be had.
Firstly, be cautious. This could be reflective of poor sales, and poorer than management expected when it issued guidance in July for the November quarter.
Secondly, I'd guess the layoffs are not about this quarter's sales. Starbucks has struggled in the past year or so, with sales growth of about 1% year-over-year in its July quarter. That's below the coffee market's expected compound annual growth rate of about 3% for the next several years, according to Statista. We already know sales have been slow.
The layoffs, in my best assumption, are about addressing the company's issue with speed (getting drinks into people's hands faster), and product innovation (there haven't been many new drinks the chain has come up with in the past year or so).
So, what are we left with?
Well, as I said a week ago, we've seen wage inflation and low CPI data (inflation on consumer goods). This means buying power, which is good for consumer discretionaries like Starbucks. That was not baked into July's guidance for the November quarter. So if the layoffs don't indicate slowing sales this quarter (again, they may - we don't know), and there's added buying power in the economy that wasn't reflected in guidance, and presumably a smaller employee head count, we could still be looking at a November quarter beat.
Case in point: sales volumes could go up, and SG & A expenses could go down in the November earnings print.
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