Starbucks Corp (NASDAQ:SBUX, ETR:SRB) has been downgraded to Underperform by analysts at Jefferies, citing significant challenges ahead for the coffee giant as it adapts to leadership changes and market pressures.
“While the new CEO suggests necessary strategic change is now on the table, we believe execution will be challenged as issues like operations, culture, value perception, and technology take time to fix,” analysts wrote.
Jefferies anticipates a reset in earnings per share (EPS) guidance for fiscal year 2025, projecting low-single-digit growth compared to consensus expectations of 11% to 12%.
As the company prepares to release its fiscal fourth quarter results, Jefferies predicts disappointing same-store sales (SSS) figures, forecasting a decline of 4% in the US, significantly worse than the consensus estimate of a 2.8% drop.
Starbucks told shareholders it expects weak US SSS, supported by foot traffic data through August.
Analysts are concerned about the upcoming fiscal 2025 guidance, which they believe could indicate a "throwaway" year for reinvestment and stabilization rather than growth.
"We think F25 could be a 'throwaway' year of reinvesting, stabilizing, and then attempting to accelerate the business," Jefferies wrote.
Jefferies has also revised its estimates for fiscal 2025, reducing its EPS forecast to $3.65, making it the lowest on Wall Street, compared to the consensus of $3.95. The firm models a decrease in US SSS of 0.8% and a decline of 0.4% internationally, including a projected 3% drop in China against expectations of growth.
The F25 consensus implying 11% to 12% EPS growth is “highly unlikely” given the expectations for softer SSS/margins, Jefferies said.
Concerns extend to the company’s long-term growth targets. Jefferies suggests that the ambitious global unit growth target of 7% may not be achievable in the current economic climate. "With less sales leverage and potentially less net cost savings, 15%+ EPS growth appears unlikely in the near to long term," the analysts warned.
The new price target for the stock is set at $76. Shares of Starbucks were trading around $94.86 on Tuesday afternoon.