Starbucks Corp. (SBUX) sent shockwaves through the market on Tuesday after issuing a disappointing preview of its fourth-quarter results, prompting a sell-off in its shares. The coffee giant revealed that it expects consolidated net revenues to decline by 3% and global comparable sales to plummet by 7% in the final quarter of the year. This news came as a surprise, even though investors had braced themselves for a challenging period.
The company also projected earnings of 80 cents per share, representing a 25% year-over-year drop. While analysts acknowledged the anticipated headwinds, the magnitude of the top- and bottom-line miss took them aback. However, some experts remain optimistic about the future of the company, particularly under the leadership of new CEO Brian Niccol.
Eric Gonzalez, an analyst at KeyBanc Capital Markets, expressed confidence in Niccol’s ability to steer Starbucks back to success, drawing parallels to his successful tenure as CEO of Chipotle Mexican Grill. Similarly, Sara Senatore, an analyst at BofA Securities, highlighted Niccol’s proven track record of turning around businesses, emphasizing his suitability for leading Starbucks through a period of transformation. BofA Securities reiterated its Buy rating and $117 price target, asserting that the Starbucks brand retains its fundamental strength.
Stifel analyst Chris O’Cull echoed the sentiment regarding Niccol’s capabilities, commending his focus on addressing key issues with his ‘Back to Starbucks’ strategy. Stifel maintained its Buy rating but lowered its price target from $110 to $105.
Looking ahead, Goldman Sachs analysts are eagerly awaiting further details on the ‘Back to Starbucks’ plan during the company’s earnings call on October 30th. The analysts will be particularly interested in gaining insights into the company’s pricing strategy, its key marketing message, and the necessary store-level investments to address staffing challenges and eliminate operational bottlenecks. Goldman Sachs analyst Christine Cho maintained a Buy rating for Starbucks but lowered the price target from $110 to $105.
Other analysts also updated their coverage of Starbucks, with TD Cowen analyst Andrew Charles reiterating a Buy rating and a $110 price target, and UBS analyst Dennis Geiger maintaining a Neutral rating while raising the price target from $85 to $95.
Starbucks will report its complete fourth-quarter results after the market closes on October 30th, followed by a conference call at 5 p.m. ET. Investors will be closely watching to see how the company plans to navigate its current challenges and deliver on its promises of a successful turnaround. The market’s reaction to the initial news suggests that a lot hinges on the details that Niccol and his team unveil.