Starbucks (SBUX) will take some time to “brew a fresh pot,” according to Jefferies analyst Andy Barish.
On Tuesday, before the market opened, Barish underrated the coffee giant’s stock, citing “a lot of uncertainty over the next 12 months” following a “significant rally” in the past six weeks since Chipotle’s stock rally. Downgraded the stock to Perform and lowered the price target to $76. (CMG) Brian Nicol has been appointed CEO.
Since August 1, the stock price has increased nearly 30% to about $95. Barish said in a note to clients that he expects “share prices will stall here and begin to recover ‘Nicol gains,’ especially as fundamentals become more of a focus.”
Nicol, who started his new role on September 9, signals that change is coming. But change will be challenged by larger issues such as operations, culture, values and technology, Barish said.
He said the outlook for the fourth quarter and fiscal year 2025 is “disappointing,” with EPS growth in the low single digits and same-store sales expected to decline.
Barish said 2025 is a “throwaway” year for Starbucks to reinvest, stabilize the business and look to turn around in 2026 and beyond.
A street cleaner carries cleaning supplies past a Starbucks Coffee store in Chongqing, China, on September 10, 2024. (Chen Xin/Getty Images) (Chen Xin, via Getty Images)
In his open letter, Nicol said he has been spending time with stores and employees since his appointment as CEO was announced on August 13, 2024.
In the US, “We don’t always deliver. It feels transactional, the menu feels huge, the product is inconsistent, the wait is too long, the handoffs are too busy.” ” he admitted.
U.S. same-store sales fell 2% last quarter. The much-anticipated Pumpkin Spice debut suffered from sluggish foot traffic, a trend that may have extended into the third quarter, according to Jefferies and data analytics platform Placer.ai.
“Earnings per share for the fourth quarter ending Oct. 30 will not be good,” Barish wrote. The lukewarm response to the Pumpkin Spice launch is one example of the challenges Starbucks faces in the U.S., but he said “cost cutting” during former CEO Laxman Narasimhan’s tenure could help boost profits. He pointed out that there is.
In its latest quarterly results, the company reaffirmed its 2024 guidance, which was revised after the second quarter.
The company said it expects global sales growth in 2024 to be in the low single digits, down from the previous 7% to 10% range, which itself is in line with its previous guidance for Q4 2023. has been revised downward from 10% to 12%.
Global and U.S. same-store sales are expected to decline by low single digits or remain flat, a downward revision from the previous forecast of 4% to 6% growth. Same-store sales in China are now expected to decline by a single digit, instead of the low-single-digit growth previously expected.
the story continues
Starbucks coffee lovers eagerly await the arrival of the flavorful Pumpkin Spice Coffee, available for a limited time every fall. (Deb Cohn-Orbach/UCG/Universal Images Group via Getty Images) (UCG via Getty Images)
—
Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
Click here for all the latest retail stock news and events to help you with your investment strategy
