Starbucks Workers United held a rally in New York City outside the Empire State Building as its open-ended strike continued for a third week. Baristas launched a strike on Starbucks Red Cup Day last month, seeking new proposals from the company at address its top issues to finalize a contract.
In the latest trading session, Starbucks (SBUX) closed at $87.11, marking a +2.24% move from the previous day.
Zacks.com users have recently been watching Starbucks (SBUX) quite a bit. Thus, it is worth knowing the facts that could determine the stock's prospects.
With allegations of unfair labor practices a major point of contention in the ongoing “Red Cup Rebellion” strike, Starbucks has agreed to pay $35.5 million to more than 15,000 New York City workers, plus $3.4 million in civil penalties, for violating New York City's Fair Workweek Law, according to New York City Department of Consumer and Worker Protection (DCWP).
Starbucks (SBUX) is rated a sell due to ongoing margin pressure, weak earnings, and an unattractive risk/reward profile despite operational improvements. SBUX posted its first positive global comp in seven quarters, but operating margins collapsed to 9.4% and EPS declined, with the dividend barely covered. Competitive pressures in China and the U.S., high coffee costs, and a premium valuation (35x trailing earnings) further challenge the turnaround story.
“This (law) is notoriously challenging to manage and this isn't just Starbucks issue, nearly every retailer in the city faces these roadblocks,” a company spokeswoman said.
Starbucks remains a hold due to persistent margin pressure, inflationary headwinds, and a premium valuation despite recent operational improvements. SBUX's Q4 showed modest revenue growth and positive comparable store sales, but operating margins declined significantly year-over-year, limiting near-term upside. Dividend growth has slowed to a penny increase, with a payout ratio above 100% and declining free cash flow raising concerns about future dividend sustainability.
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The holiday season usually means peak sales, driven by the return of seasonal favorites, increased high-margin specialty drinks, and a surge in gift card sales that secure future revenue. It's a time when busy cafes and iconic red cups lead to the company's strongest quarterly results.
A New York beanery joined the labor stoppage that has so far impacted more than two dozen locations.