Starbucks Shares Drop as Sales Decline and Outlook is Suspended

LOCAL MARKET COMMENTARY

On Tuesday, South Africa's Top 40 and All Share indices both closed lower, down 0.37% at 78,755 and 86,753 points, respectively. This decline followed central bank data revealing a 0.7% drop in the leading business cycle indicator for August, erasing the previous month's gains. Despite increased business confidence since the coalition government formed in June and stronger retail sales, sectors like mining remain in decline. Attention now shifts to today's September inflation data, with economists expecting a 3.9% year-on-year rate.

EUROPEAN MARKET COMMENTARY

European stocks declined on Tuesday, with investors grappling with uncertainty around geopolitics and potential global interest rate cuts. However, strong guidance from German tech giant SAP helped limit some losses in the tech sector. The IMF projected that Germany, a manufacturing leader, will see zero growth in 2024, which could drag down overall euro zone performance. Traders now expect the European Central Bank to reduce interest rates by around 130 basis points by the end of 2025, following ECB President Christine Lagarde’s comments that inflation may return to 2% faster than anticipated.

US MARKET COMMENTARY

U.S. stocks ended mostly flat on Tuesday, with the Nasdaq making a small gain as investors closely monitored Treasury yields and awaited further earnings reports to gauge the strength of U.S. companies. Equity markets are expected to remain volatile in the coming weeks as investors focus on company earnings, new economic data, the results of the U.S. election, and an upcoming Federal Reserve meeting. Traders are currently anticipating an 89.6% chance of a 25-basis-point interest rate cut in November, according to CME's FedWatch tool.

ASIA MARKET COMMENTARY

Asia-Pacific markets mostly rose on Tuesday, diverging from Wall Street trends, as Tokyo Metro’s successful market debut fuelled investor optimism. Shares of the Japanese subway operator surged 45% in early trading following its IPO, which raised 348.6 billion yen, the largest in Japan since 2018. The IPO was 15 times oversubscribed, with shares priced at 1,200 yen each. Looking ahead, Asia will release key economic data, including Singapore's September inflation, which is expected to slow to 1.9%, the lowest since March 2021. Meanwhile, China and Hong Kong stocks opened steadily this morning, buoyed by potential government economic support.

CURRENCY MARKET COMMENTARY

The South African rand strengthened on Tuesday, supported by rising global precious metals prices and its attractiveness for carry trades, where investors borrow in low-interest-rate currencies to invest in higher-yielding assets like the rand. The U.S. dollar remained near a 2-1/2-month high this morning as investors adjusted their expectations for a more gradual pace of interest rate reductions. Market participants are also closely watching the tight U.S. presidential election race, which is adding to the uncertainty and influencing currency market movements.

COMMODITY MARKET COMMENTARY

Gold prices surged to a record high of $2,749.07 in early trading today, driven by heightened demand for safe-haven assets amid the Middle East conflict, uncertainty surrounding the Federal Reserve's outlook, and the upcoming U.S. election. The metal later eased slightly to settle around $2,743.42. Meanwhile, oil prices dipped this morning after data showed a larger-than-expected rise in U.S. crude inventories. Market attention remains focused on ongoing diplomatic efforts in the Middle East as Israel continues its attacks on Gaza and Lebanon.

We Buy Cars Holdings Limited (WBC) -1.49%

For the year ending September 30, 2024, core headline earnings are expected to increase by 21% to 26%, reaching between R798 million and R832 million, compared to R661 million in 2023. Core headline earnings per share (HEPS) are expected to rise by 7% to 12%, from 197.9 cents to a range of 212.5 to 222.4 cents. However, basic earnings and basic earnings per share (EPS) are expected to drop significantly by 56% to 61%, with basic earnings between R322 million and R364 million, and EPS between 85.4 cents and 97.7 cents, down from R821 million and 245.9 cents in 2023. Headline earnings and HEPS are also forecast to fall by 55% to 60%.

Sasfin Holdings Limited (SFN) +1.85%

For 2024, the group's headline earnings fell drastically to a loss of R58.678 million, a 152.07% decline from a profit of R112.683 million in 2023. Headline earnings per share also plummeted by 152.15% to -190.96 cents. Total income, including associate income, decreased by 7.92% to R1.279 billion, and the group posted a loss of R60.10 million compared to a profit of R108.8 million the previous year. The cost-to-income ratio rose to 95.51%, and return on equity fell sharply to -3.68%. Total assets decreased by 8.34%, and deposits from customers dropped by 4.95%. The capital adequacy ratio slightly declined to 15.87%, and the credit loss ratio increased to 165 basis points.

Oasis Crescent Property Fund (OAS) +0.00%

Total income grew by 10.8% to R71.6 million from R64.6 million in the same period last year. Distributable income also increased by 10.8% to R39.1 million, while distribution per unit (DPU) rose by 11.7% to 59.4 cents. Net asset value per unit (NAVPU) saw a 13.8% increase to 2 757 cents. Headline earnings per unit (HEPU) jumped 23.3% to 111.1 cents, and earnings per unit (EPU) increased by 22% to 108.0 cents, both driven by adjustments on financial assets at fair value.

General Motors Company (GM) +9.81%

Shares of General Motors (GM) surged by 9.8% on Tuesday, marking the largest daily increase since March 2020, after the company exceeded Wall Street’s third-quarter earnings expectations and raised its 2024 guidance. GM reported adjusted earnings per share of $2.96, beating the expected $2.43, and revenue of $48.76 billion, surpassing the $44.59 billion forecast. The automaker now forecasts full-year adjusted earnings before interest and taxes (EBIT) between $14 billion and $15 billion, up from previous estimates. GM also raised its automotive free cash flow forecast and plans to continue shareholder returns through stock buybacks, aiming to reduce outstanding shares below 1 billion by 2025. While third-quarter revenue grew 10.5% year-over-year, GM CFO Paul Jacobson cautioned that fourth-quarter earnings would be lower due to seasonal factors and increased electric vehicle production. Despite this, GM's stock is up 36% year-to-date, boosted by significant buybacks, reducing outstanding shares by 19% compared to last year.

Starbucks Corporation (SBUX) +0.38%

Starbucks reported preliminary results on Tuesday, revealing a 3% drop in net sales to $9.1 billion and adjusted earnings per share of 80 cents, both falling short of analysts' expectations of $1.03 earnings per share and $9.38 billion in revenue. Same-store sales dropped by 7%, marking the third consecutive quarterly decline and the steepest drop since the COVID-19 pandemic. The company attributed the decline to weaker demand in North America. Despite the challenging quarter, Starbucks increased its dividend from 57 cents to 61 cents per share.

Do you prefer a full in-depth report you can read offline? Click here to download the full report.