Starbucks (NYSE: SBUX) stock slid further after the announcement of 80 per cent year over year sales decline in China for the month of February. It expects full-year China sales to decline 50 per cent from the past year period, anticipating a $400M-430M sales decline compared to the previous expectations.
The company says almost 90% of its stores in China resumed operations with high safety protocols; they believe 95 per cent of its stores will be open by the end of the second quarter.
Starbucks generates 65 per cent of consolidated revenue from the US – which is in line with expectations. The company had generated 3 per cent year over year comparable sales growth from China and 6 per cent from the US in the latest quarter.
Starbucks would also experience a huge setback to its store expansion strategy in China. Its global net stores grew 6% year over year in the first quarter, thanks to 16% growth from China.
“We remain optimistic and committed to the long-term opportunity in China, building on our brand heritage and a 20-year legacy of profitable growth,” chief executive officer Johnson said.
Market analysts have also started adjusting their price targets and financial outlook for Starbucks due to problems in China. The firm expects a $0.12 to $0.16 negative impact on full-year earnings per share estimate of $3.00. Oppenheimer dropped it 2021 earnings per share forecast to $3.34 compared to the previous outlook of $3.41.
Starbuck stock price plummeted close to 14 per cent since the beginning of this year. The shares are currently hovering around $76, down substantially from 52 weeks high of $96 a share.
MKM Partners, however, looks bullish and started covering Starbucks stock with a Buy rating and $105 price target.
“We believe Starbucks strong domestic business, while unlikely to continue at current levels to continue, should post solid results, and is complemented by an International growth story that has considerable legs as the global coffee marketplace has been growing at 6%,” writes MKM Partners analyst Brett Levy.
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