Starbucks‘ shares plummeted 15% on Wednesday, hitting a near two-year low, following the company’s announcement of reduced annual forecasts due to continued weak demand in the U.S. and slower recovery in China.
The coffee giant attributed the decline to price increases implemented last year, which led many customers to opt for home-brewed coffee over dining out, negatively impacting sales across the industry.
For the first time in almost three years, Starbucks reported a drop in same-store sales.
Danilo Gargiulo, a senior analyst at Bernstein, expressed concerns about the company’s future, noting, “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.”
In response, Deutsche Bank downgraded Starbucks’ stock from “buy” to “hold,” and at least 12 brokerages revised their target prices downward.
Adjusting its expectations, Starbucks now anticipates global and U.S. comparable sales to range from a low single-digit decline to flat, a significant downgrade from its previously projected growth of 4% to 6%.
Profit forecasts were also revised, with per-share growth expectations reduced to between flat and low single-digits, down from the initial forecast of 15% to 20% growth.
On a post-earnings call, CEO Laxman Narasimhan highlighted changing consumer behavior: “Many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent,” he said.
Narasimhan observed shifts in customer spending patterns during the quarter, as individuals balanced their budgets between dining out and eating at home.
Analysts at Jefferies expressed skepticism about Starbucks’ strategy for the year, suggesting that focusing on the core menu, value, promotions, and enhancing loyalty programs might be more effective.
In the stock market, Starbucks’ valuation measured by the forward price-to-earnings ratio stands at 20.88, closely aligned with industry peers like McDonald’s and Restaurant Brands, which have ratios of 21.54 and 20.83, respectively.