Written by Yuveria Tabassum
(Reuters) – Starbucks stock fell on Wednesday as the coffee chain lowered its full-year forecast, citing continued weakness in demand from inflation-weary U.S. customers and a slower-than-expected economic recovery in China. Following the downward revision, the stock price fell 15%, hitting its lowest price in about two years.
Last year’s price increases prompted customers to avoid cafes and restaurants and drink coffee at home instead, hurting the operations of chains like Starbucks.
The company reported same-store sales decline for the first time in nearly three years.
Danilo Gargiulo, Senior, said: “From the early signs of a backlash in November to now, we have not been able to stop traffic leakage, and the deterioration of China’s macro situation and competitive dynamics has led to protracted challenges and concerns at the end of the tunnel. “This may suggest that there is no sign of light in the future.” Bernstein analysts wrote in a note.
Deutsche Bank lowered its rating on Starbucks from “buy” to “hold,” and at least 12 brokerages lowered their price targets for the stock.
Starbucks expects full-year comparable sales to be in the low-single-digit decline to flat range, both globally and in the U.S., compared to a historical growth range of 4% to 6%. .
The company also lowered its earnings per share growth forecast from the previous 15% to 20% increase to between flat to low single digits.
“Many customers are concerned about where and how they will spend their money, especially as most of their stimulus savings have been spent,” CEO Laxman Narasimhan said on a post-earnings conference call. It’s becoming more rigorous.”
“We saw this materialize throughout the quarter as customers made trade-offs between eating on-the-go and eating at home,” he added.
Analysts at Jefferies were skeptical of new products planned this year, saying it would be wise for Starbucks to refocus on its core menu, value, promotions and loyalty.
Starbucks’ forward price/earnings ratio (P/E), a common metric for stock valuation, is 20.88 times, compared to 21.54 times and 20.83 times for peers McDonald’s and Restaurant Brands, respectively.
(Reporting by Juveria Tabassum; Editing by Shilpi Majumdar)
