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Starbucks (NASDAQ:SBUX) slid in early trading after Q2 comparable sales fell short of expectations, even as management touted progress in its Back to Starbucks turnaroundhighlighting smoother store operations, deeper customer engagement and a long-term setup in China.
Global comps dropped 1%, with North American sales down 1% and U.S. units off 2%, offset slightly by higher average tickets. CEO Laxman Narasimhan and his team stressed on the earnings call that new barista training, digital-order enhancements and expanded loyalty perks are taking hold, and they pointed to China's flat comps as evidence the recovery plan can work in tougher markets.
Wall Street's verdict was swift. Goldman Sachs cut its rating to Neutral from Buy, warning of too many near-term headwinds and fading share-gain momentum. TD Cowen's Andrew Charles kept a Buy but trimmed his price target to $90 from $102, now modeling a more balanced recovery in 202627 instead of an earlier rebound.
Morgan Stanley's Brian Harbour remains Overweight with a $95 target but quipped that patience will be required, noting bears calling for a longer turnaround timeline had it right this time. Jefferies' Andy Barish dropped to Hold, citing persistent brand challenges and a cautious consumer backdrop, while BTIG's Andrew Strelzik slashed near-term forecasts and cut his target to $100, saying EPS pressure is likely greater and more prolonged than once expected.
Investors should care because Starbucks' valuation espeically if comps keep lagging and analysts further shave forecasts, the stock could sink back toward its five-year average. Moreover, with Q3 comparable-store sales and updated guidance due in late July, markets will be watching whether the Back to Starbucks plan can regain momentum or if SBUX needs to adjust its playbook once more.
As a recap, Starbucks missed Q2 earnings expectations with non-GAAP EPS of $0.41 and revenue of $8.76 billion, both below estimates. Global same-store sales fell 1%, driven by a drop in transactions, while North America comps slipped 1% and U.S. sales declined 2%. International markets grew modestly, with China flat. The company added 213 stores, reaching 40,789 globally. Despite traffic challenges, Starbucks declared a $0.61 dividend for May, signaling continued shareholder focus amid slower post-pandemic recovery in footfall and top-line growth.
This article first appeared on GuruFocus.