General Industry

Starbucks Shares Drop To Two-Year Low

By Reuters
Starbucks Shares Drop To Two-Year Low

Shares of Starbucks fell 15% to their lowest in nearly two years on Wednesday, after the coffee chain cut annual forecasts on persistent weak demand from inflation-weary US customers and a slower-than-expected economic recovery in China.

Price hikes taken last year have forced customers to ditch cafes and restaurants and instead drink coffee at home, hurting business for chains such as Starbucks.

'Prolonged Challenges'

The company reported a fall in same-store sales for the first time in nearly three years.

"The inability to stop the traffic leakage from the early signs of pull-back in November to date and the worsening macro and competitive dynamics in China may suggest prolonged challenges and no evidence of light at the end of the tunnel," Danilo Gargiulo, senior analyst at Bernstein, wrote in a note.

Deutsche Bank downgraded its rating on Starbucks to 'hold' from 'buy', while at least 12 brokerages cut target price on the stock.


Global Sales

Starbucks expects full-year comparable sales — both globally and in the US — to be in the range of a low single-digit decline to flat, compared with its previous range of 4% to 6% growth.

It also cut per-share profit growth forecast to between flat and low-single digits, versus its earlier range of 15% to 20% growth.


"Many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent," CEO Laxman Narasimhan said on a post-earnings call.

"We saw this materialise over the quarter as customers made the trade-offs between food away from home and food at home," he added.

Prudent Approach

Jefferies' analysts said they were skeptical about the planned slate of new products this year and a re-focus on core menu, value, promotions and loyalty would be more prudent for Starbucks.

Starbucks' forward price-to-earnings multiple, a common benchmark for valuing stocks, is 20.88, compared with 21.54 and 20.83 for industry peers McDonald's and Restaurant Brands, respectively.