As a result, Morgan Stanley downgraded the stock to Equal-Weight from Overweight, and Telsey Advisory Group also downgraded it to Market Perform from Outperform and lowered its price target to $60 from $70.
Starbucks lowered its Q3 comp guidance to 1%. In its Q2 earnings report back on April 26, the company said it was expecting comps growth of 3-5% for the full year with it tracking towards the lower end of that range. So, the 1% performance for Q3 is well below its expected pace for the year.
Due to the soft Q3 comps and a more cautious outlook for Q4, the company lowered its FY18 EPS guidance to $2.39-$2.43 from $2.48-$2.53. What's particularly worrying to investors is the disappointing results in China as transaction volume was lower than anticipated. China represents the most significant growth catalyst for the company as new stores continue to open at a rapid pace. Last quarter SBUX opened 29 new stores in the country, for a total of 216. This, along with a 4% boost in comps there, led to a 54% surge in China revenue to $1.19 bln.
Overall, SBUX is looking to build 600 net new stores in China over the next five years in mainland China. This would double the market's store count from the end of FY17 to 6,000 across 230 cities. Clearly, SBUX views China as a major part of its growth strategy. The fact that results aren't as strong as they like at the moment is a discouraging development.
The company has outlined a three-point plan that it hopes will help turn the tide. This will include accelerating growth in both the U.S and China, leveraging the reach of its brand through the Global Coffee Alliance, and sharpening its focus on increasing shareholder value.
On that last point, the company has raised its target for cash returned to shareholders to $25 bln through FY20, including a 20% increase to its quarterly dividend to $0.36/share. Through its existing share repurchase program, SBUX also has 124 mln shares available for repurchase.
To conclude, SBUX seems to be facing a few different problems currently, from both a sentiment and business fundamental standpoint. What it does have going for it is its commitment to return capital to shareholders, but, from a growth and stock trend perspective, SBUX has certainly seen better days.