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Starbucks Corporation Slaughtered: 8 Percent And 4 Reasons Why

Starbucks Corporation (NASDAQ:SBUX)
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Starbucks Corporation (NASDAQ :SBUX) stock was in freefall on Friday morning. The coffee company disappointed Wall Street with the outlook for its business going forward. At time of writing Starbucks stock was down more than 8 percent. The fall erases all the gains made by shares earlier in 2017.

There are many reasons why the coffee maker is collapsing today, but 4 major ones are key. Analysts are worried about Teavana, rising investment, digital stagnation and global decline. Those are four pretty good reasons to be skeptical of its future.

Teavana is closing

As part of its quarterly release Starbucks revealed that it would e closing all Teavana locations. The firm acquired the tea shop chain for $620 million back in 2012. After years of trouble, it’s now worth a whole lot less than that.

The closure of the stores is planned to be complete by the Spring of 2018. The close of Teavana may be the shade of a bigger issue at Starbucks. The tea shop’s sales have been declining, at least in part, because of falling foot traffic in US malls.

That trend, likely driven by Seattle’s other corporate giant Amazon.com, Inc. (NASDAQ :AMZN)  could affect Starbucks itself in future.

Digital stagnation and Starbucks rewards

This is a point that was brought up by Matthew DiFriso of Guggenheim Securities. He says that the “digital platform and Starbucks Rewards is beginning to show stagnant growth, as it delivered 36 percent of total sales for the quarter, inline with F2Q17.”

That’s a problem for the Seattle coffee seller. The Rewards program is designed to keep people coming to its coffee shops and avoid competitors. Theoretically it should have a multiplier effect on the firm’s total sales.

Last year the firm caused a furore with changes to the program though it ironed over those problems it seems that one of the brighter spots on its books appears to be darkening.

Investment concerns

Mark Astrachan of Stifel reckons that Starbucks Corporation (NASDAQ :SBUX)  is likely to try to spend its way out of declining sales. That’s a worry as increased capital expenditure could lead to profit declines.

“We believe both pressures could lead to a need for increased investment to change the current glide path, ultimately resulting in management reducing long-term EPS targets,” he wrote.

Astrachan lowered his price target on shares in the firm to $58, down from $66, in response to the investment fears. If Starbucks does indeed have to boost investment, more investors are going to have to get used to thinner margins in the medium term.

Global sluggishness is hurting Starbucks stock

This is the real problem that informs all of the others. Starbucks on Friday said that its global growth was going to shudder lower in the year ahead. That trend could continue in the medium to long term, a big worry for Wall Street.

It appears to be macro conditions outside of its control that are hurting Starbucks Corporation (NASDAQ :SBUX) . Therefore, it may be the victim of the “mall fall” that killed its Teavana subsidiary.

For years the firm has been unique in its ability to make coffee a high margin high street industry. Going forward, it seems that the firm is going to have a hard time keeping that reputation.

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Paul Shea

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