Starbucks (SBUX) Earnings Preview

We're steering clear of a Starbucks (SBUX) earnings play today.

While many investors are already betting that new CEO Brian Niccol can revitalize the coffee giant, our data suggests the timeline for a turnaround may be a bit longer than expected.

Since Niccol's appointment, Starbucks' stock has climbed over 33%. However, we haven't observed positive momentum on the consumer front yet. Web metrics reveal a 24% year-over-year decline in U.S. digital traffic for January, while competitors are gaining ground.

Dutch Bros (BROS), for instance, is attracting significant consumer interest.

The stock is trading near all-time highs, up 56% in the last six months. We took a bullish position last June, anticipating rising demand and nationwide expansion, and that move is paying off.

But perhaps even more concerning than sinking web traffic is the drop in Starbucks' monthly active app users.

Growth is handily in the red, and raw December usage volume hit a three-year low.

We've previously detailed Starbucks' top three challenges:

1. A complex menu complicates ordering and fulfillment.

2. Political controversies have damaged the brand's identity and weakened customer loyalty.

3. Competent competition is on the rise.

Since then, we've seen signs that Niccol and his team are working to realign the Starbucks brand with its core values: quality coffee and uplifting community.

The company is reintroducing ceramic mugs and glasses for in-store orders, encouraging customers to sit and enjoy their coffee with unlimited refills. They're also moving the condiment bar back into the open, allowing patrons to customize their drinks, saving time and enhancing taste. Importantly, Starbucks is implementing a code of conduct to prohibit loitering, vaping, and harassment—common-sense policies that were previously lacking.

These changes took effect yesterday, so it's too early to see their impact in our data.

Bottom line: Niccol appears to be making the right moves, and he has a track record of success as a fixer. However, it may be a few quarters before we see a financial return on his leadership. We're staying on the sidelines for now, and are hopeful for the future.

In the meantime, investors interested in this segment may consider Dutch Bros. This drive-thru-focused chain has ambitious expansion plans and enjoys superior consumer sentiment. If we had to pick an upside play, we'd stick with BROS.

A “Core Conviction” stock just delivered STELLAR earnings; Shares up +12% today