Starbucks Corporation (Nasdaq: SBUX) stock was down nearly 5 percent Friday after the company’s fiscal first-quarter holiday sales numbers came up short of analyst expectations. Some Wall Street analysts say long-term investors should shrug off the bad quarter, but others aren’t so certain.
On Thursday after the market close, Starbucks reported first-quarter revenue of $6.07 billion and same-store sales growth of 2 percent. Both numbers missed consensus estimates of $6.18 billion and 3 percent, respectively. Adjusted earnings per share of 58 cents barely beat consensus estimates of 57 cents.
The company blamed the poor quarter on disappointing holiday beverage sales, and even Starbucks bulls have been forced to admit that sales growth has been relatively anemic in recent quarters and results have been unpredictable.
Still, Morgan Stanley analyst John Glass says Starbucks and its stock maintain key advantages, and the company will overcome its difficulties eventually. Despite the disappointing numbers, Glass says Starbucks has higher customer frequency rates than any other retail company he’s aware of, and faces no true competitor in its space in the entire global market.
In addition, Glass says Starbucks’ return on invested capital of about 25 percent is among the highest in the restaurant world. Starbucks is still in the early stages of its China expansion as well. China is potentially the largest global market for Starbucks, and both same-store sales and transactions jumped 6 percent in China in the first quarter.
Finally, Glass says the Starbucks Rewards program, which added 1.4 million members in the quarter, is “best-in-class” and differentiated from competitor programs.
Oppenheimer analyst Brian Bittner says better numbers are on the way but may require some patience.
“While we believe the stock is firmly stalled until after lapping the June quarter, we urge longer-term investors to take advantage of pullbacks for one of retail’s best operating companies at an intriguing valuation,” Bittner says.
Starbucks bulls are looking for silver linings, but other analysts are not convinced Starbucks is an obvious investing opportunity.
Following the disappointing earnings report, Stifel analyst Chris O’Cull said he is “uncertain whether the cause of slower U.S. sales has been identified or the company’s plan will improve results.”
Morgan Stanley has an “overweight” rating and $72 price target for Starbucks. Oppenheimer has…
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