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Starbucks shares fell 1.2% on the news.
TD Cowen analysts have highlighted concerns about macroeconomic and competitive pressures in China, which are expected to pose challenges to Starbucks’ same-store sales (SSS) in the country.
“We note an increasing investor narrative on China (~16% of 2025E EBIT) that we worry is poised to persist given parallels to Yum circa 2005, when China began a decade of dominating the investor focus. While we were pleased with Starbucks China’s 3Q (June) performance, we see risk that China headwinds are likely to get stronger rather than weaker,” they wrote in a note.
While the analysts believe that consensus earnings estimates for 2023-2025 are achievable, they feel that Starbucks’ current valuation multiple doesn’t adequately account for these challenges compared to its five-year average.
As a result, they anticipate that Starbucks shares may remain in a holding pattern.
Despite these concerns, they still appreciate Starbucks’ long-term potential but are taking a cautious stance as they monitor the macroeconomic and competitive dynamics in China.
“We still view non-China Int’l as a bright spot in Starbucks’ portfolio though our lower China est leads us to model 2024-25E Int’l comps of 10% & 4.8% that modestly trail 10.5% & 5.4% CM,” the analysts concluded.
