Starbucks Corporation (Nasdaq: SBUX) stock plunged 9 percent on Wednesday after the company lowered its same-store sales growth guidance for the current quarter and said it expects to close 150 stores next year. Analysts say the negative commentary from Starbucks is troubling, but some are still bullish about the long-term outlook for SBUX stock.
Starbucks reduced its fiscal third-quarter same-store sales growth guidance to 1 percent, well below consensus analyst expectations of 2.9 percent growth and previous company guidance of 3 percent growth. Management also says U.S. and China same-store sales growth is trending roughly flat in the quarter.
[See: 7 Classic Inflation Hedges and Their Thorns.]
Speaking at a conference on Tuesday, CEO Kevin Johnson said third-quarter numbers were negatively impacted by the company’s decision to close 8,000 stores on May 29 for racial sensitivity training, but added that it “is not an excuse” for the disappointing guidance.
In addition to the guidance cut, Starbucks says it will be closing 150 poorly-performing locations next year, about three times the number of store closures the company has averaged in recent years. Starbucks also said it plans to reduce its number of new licensed stores in 2019 by about 100 locations.
Starbucks is also increasing its dividend by 20 percent and raising its planned capital return target from $15 billion to $25 billion through 2020.
Morgan Stanley analyst John Glass says there’s no question the guidance cut is a negative for investors.
“Flat China comps … played only a very small role in the miss, but deceleration was a negative surprise and believing in the long-term opportunity in China is important to the long-term thesis,” Glass says.
Glass says investors should expect earnings multiple contraction for SBUX stock. “SBUX is now saddled with increased EPS risk and a poor recent track record of driving sales,” he says.
According to Bank of America analyst Gregory Francfort, third-quarter guidance may not be as bad as it seems.
[See: 10 Restaurant Stocks to Watch This Earnings Season.]
“Afternoon sales in the U.S. were impacted by a delay in the Frappuccino promotion launch following the Philadelphia incident,” Francfort says. “June is running up 3 percent against easier comparisons but has accelerated from May on both a one- and two-year basis.”
Morgan Stanley has an “equal-weight” rating and $59 price target for Starbucks. Bank of America has a “buy” rating and $64 target for SBUX stock.
More from U.S. News
8 of the Most Incredible Investments of the 21st Century
7 of the Best Socially Responsible Funds
Starbucks Corporation (SBUX) Stock Has A Growth Problem originally appeared on usnews.com
