SBUX Starbucks Corporation

By Steven Russolillo 

Between slowing growth and a management shake-up, it is no wonder Starbucks Corp.'s stock is in need of a caffeine rush.

Shares fell 7.5% last year, their first annual drop since 2008 and only the sixth since Starbucks hit the public markets 25 years ago. Missing sales targets in the U.S. -- its largest market -- for four straight quarters will do that to a share price.

Adding more pressure was news late last year that Howard Schultz will again relinquish the chief executive role, passing the torch to Chief Operating Officer Kevin Johnson. The last time Mr. Schultz stepped aside from the CEO role was during the lackluster stretch from 2000 to 2008. The difference now is that he will remain with the company as executive chairman but focus on high-end coffee bars -- yet another attempt to change how Americans drink the beverage.

But that venture won't be material to Starbucks's bottom line soon, or perhaps ever. Meanwhile, there is little evidence ahead of Thursday's fiscal first-quarter report to suggest Starbucks has regained its mojo.

Analysts polled by FactSet forecast earnings for the period ending in December of 52 cents a share, up from 46 cents a year earlier. Revenue is expected to have risen 8.9% to $5.85 billion. An important metric to watch is same-store sales, with analysts projecting just 3.8% growth from a year earlier. That would be the lowest since the financial crisis and far below the historic rate of at least 5% that Starbucks is targeting.

Starbucks has noted how the presidential election and overall economic uncertainty has played a role in its recent performance. Or as Mr. Schultz put it at December's investor day: "the slight slowdown in comps that has you all so nervous." Yet Starbucks is struggling to peddle affordable luxuries despite numerous surveys of consumer confidence surging to multiyear highs.

As Starbucks matures, finding new ways to keep growing is a challenge. In December, it laid out aggressive five-year targets of 15%-20% earnings growth and double-digit revenue growth thanks to more store openings and new digital initiatives. Membership is growing on its mobile app, which helps its cafes operate more efficiently. Mobile payments now make up 25% of U.S. transactions, up from 20% in the year-ago period.

But shorter-term trends are working against Starbucks. Although U.S. consumers say they are confident, they are spending their money differently these days and eating out less. Foot traffic at U.S. fast-food restaurants dropped 1% in the third quarter, the first decline in five years, according to the most recent data from industry tracker NPD Group. Starbucks isn't immune to this.

Fetching 26 times projected earnings over the next 12 months, Starbucks is no bargain either. Its multiple is pricier than peers Dunkin' Brands Group Inc., McDonald's Corp. and Yum Brands Inc.

Perhaps investors should stick to decaf.

Write to Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

January 25, 2017 13:41 ET (18:41 GMT)

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