Starbucks problems to linger but turnaround on track - analysts

By Reuters Markets Reuters

Nov 3 (Reuters) - Starbucks Corp's slow service at stores and rising competition from high-end coffee shops are likely to pressure its performance next year, analysts said, after the U.S. coffee-chain reported disappointing fourth-quarter sales on Thursday.

Continue Reading Below

However, the company's shares were up 3 percent on Friday as analysts said the cut in Starbucks' long-term forecasts was widely anticipated and expressed confidence in the management's ability to turn things around.

Starbucks' plan to return $15 billion over the next three years was also termed as a confidence booster for investors, after shares were down in extended trading on Thursday following weaker-than-expected growth in the United States.

The company has been struggling to fill orders at stores after it launched a mobile order-and-pay service to reach more customers, but that has caused congestion at its pickup counters, leading to slower service and frustrated customers.

The company said on Thursday it was working to improve the time taken to service orders during peak morning hours, open up its mobile order-and-pay service to non-members and bring in more innovative food items.

"Starbucks is often criticized for spinning too many plates in the air to drive top line, and we believe management is now signaling a more simplified focused approach going forward," Mizuho analyst Jeremy Scott said.

Continue Reading Below

Cowen & Co analyst Andrew Charles, however, said the company should focus on building out its beverage menu as food items have lower margins.

"We would prefer to see beverage sales accelerate given outsized food sales growth has weighed on Americas gross margins by 80-90 basis points in the last 3 quarters," Charles said.

Six brokerages, including JP Morgan and Credit Suisse, reduced their price targets on the stock to as low as $52. The median price target on the stock is $62.50.

Starbucks has been bleeding customers to boutique coffee sellers like Intelligentsia and lower-price rivals including McDonald's Corp, which is selling small McCafe espresso drinks for $2.

The Seattle-based coffee chain said it expects to grow 12 percent or more, compared with its previous estimate of 15 percent to 20 percent. It also cut its global long-term same-store sales growth forecast to 3 percent to 5 percent from 4 percent to 6 percent.

Starbucks shares are up 4 percent over the past 12 months, hugely underperforming the S&P 500 index that has surged 20 percent. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sayantani Ghosh and Shounak Dasgupta)