Starbucks stock downgraded on falling traffic, China woes

William Blair downgraded Starbucks Corporation (NASDAQ: ) to market perform from outperform on Wednesday following reports that the company has experienced declining foot traffic and failed to achieve financial results. Target.

The coffee giant experienced its weakest traffic performance outside of the pandemic or Great Recession, falling 7% in the March quarter. Additionally, in China, comparable sales fell 11%, well below expectations for low-single-digit growth.

The second quarter was challenging for Starbucks as it missed key financial metrics. Revenue fell 2%, in stark contrast to expectations for 5% growth, and earnings per share (EPS) were 15% below Wall Street expectations. Even the number of active members of the domestic Starbucks Rewards Club fell by 4% month-on-month, marking a rare decline for the loyalty program.

Starbucks management has taken several steps to address these challenges. However, the company's reversal in fortunes has raised concerns about potential underlying problems, such as overpricing or a loss of brand appeal.

While William Blair believes the lowered 2024 guidance is achievable, it means comparable sales will be flat or even negative for the rest of the year, leading to low-single-digit revenue growth and flat to slightly negative earnings per share. There is growth.

Uncertainty over whether Starbucks can quickly return to revenue and profit growth has led analysts to remain cautious. The company's shares fell 12% in after-hours trading. The downgrade reflects concerns that even if Starbucks uses a typical trough valuation multiple, its stock price could still fall about 6% from current aftermarket levels.

Starbucks faces a variety of risks, including significant risks to the U.S. and China markets, potential adverse currency fluctuations, risks of IT infrastructure failure or data leakage due to its heavy reliance on digital sales and mobile ordering, and inflationary pressures. These factors have led to uncertainty about the company's current financial performance and growth prospects.

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Investment Professional Insights

Amid concerns about Starbucks Corp.'s (NASDAQ: SBUX ) recent performance, investment expert Data provides a broader perspective on a company's financial health. Starbucks has a market value of US$100.19 billion and a price-to-earnings ratio of 23.69, maintaining a strong position in the market.

Notably, the company's revenue grew 11.46% in the trailing 12 months to Q1 2024, underscoring its ability to grow sales despite reported traffic declines. In addition, Starbucks has also demonstrated its commitment to shareholder returns, increasing its dividend for 14 consecutive years, proving its long-term financial stability.

For investors looking for more in-depth analysis, investment expert Provides further insight into Starbucks' financial dynamics. The stock currently trades at a low price-to-earnings ratio relative to recent earnings growth, suggesting underlying value for investors considering the stock's profit potential.

Additionally, despite recent challenges, Starbucks remains a significant player in the hotel, restaurant and leisure industries and is expected to remain profitable this year.For more details Investment Professional Tips, including other indicators and forecasts, readers can explore InvestingPro's complete offering.And 10+ extra tips, use coupon code for an exclusive 10% discount PRONEWS24 Subscribe yearly or annually to Pro and Pro+.

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