Starbucks Corp (NASDAQ:SBUX, ETR:SRB) likely faced a variety of challenges in the United States and China during the fiscal third quarter, analysts at UBS believe.
For Q3, US same store sales are expected to be down about 2%, the bank’s analysts wrote in a note to clients ahead of the coffee chain’s earnings report due on July 30 after the market closes.
“Reduced occasional customer visits, pressured consumer spending, and boycotts are likely headwinds we anticipate continued through the quarter, despite strategic plans to improve trends across promotional activity and menu innovation,” they wrote.
In China, they see sales likely dragged down by macro and increased competition, forecasting a 12% drop in same store sales.
The bank’s analysts see China sales improving over the next several quarters.
“Longer term, we believe the brand should benefit from digital gains, innovation, loyalty (21 million active members), and delivery in China, with improving margins and returns still supportive of store growth,” they wrote.
Starbucks remains well positioned long term with brand strength and an attractive growth profile, the analysts added.
Sentiment, which has skewed negatively given ongoing sales pressures and a lack of visibility into an inflection in trends, could be boosted by reports Elliot Management has taken a significant stake in the company.
“We remain focused on indications of traction against plans to support a positive inflection in US sales trends, as well as easing comparisons and a boycott lap later this year, and other opportunities to unlock shareholder value,” the UBS analysts wrote.
“But while we believe valuation is undemanding, uncertainty around a US and China sales trajectory and other optionality keep us ‘Neutral’ for now.”
They have an $85 price target on the stock, implying upside of more than 10% from Starbucks’ share price of about $77 on Tuesday afternoon.