Starbucks Slowdown: Tough Times No Time For a Venti

There was a time when getting a coffee at Starbucks Corp. (SBUX) – whether a basic “tall bold” or a souped-up venti concoction – was considered a relatively cheap treat, though those of us with a daily Starbucks habit might think otherwise.

However, a report from RBC Capital Markets analyst Larry Miller indicates that even that daily cup of store-bought java is one of the victims of the credit crunch. Mr. Miller lowered his 2009 earnings estimates – to $0.90 from $0.95, and said:

[The move] reflects our proprietary survey work, which suggests Starbucks sales continue to weaken as consumers are changing their habits and brewing more coffee at home.

He also lowered his target price on the stock  - to $14 from $17 - based on a multiple of 15 times his 2009 estimates. Starbucks shares trade at about $11.

It is Mr. Miller’s view that Starbucks will be "a mid-to-high-teen earnings grower long term, but with near term challenges.” He added there are other factors that may impede the company meeting his target price or earnings estimates – primarily rising green coffee and the difficulty in obtaining suitable sites to meet its aggressive growth targets.

Comments

[Budget Man]

I would expect SBUX to fall even more as $4 lattes are essentially a luxury, and would expect their earnings to suffer through an economic downturn. Plus, they're reaching saturation in many markets.

2008 Oct 13 03:17 AM

[kris23]

Obviously in times like these, luxury coffee would the first cut expense when you can make it so easily at home. Clearly SBUX offers more of an expierence than just a cup of coffee, but its clearly something consumers are willing to forgo as well. Starbucks is predicted to close down today (www.predictwallstreet....) and between closing numerous stores and weakening revenue its not doubt SBUX will be hurt badly in an economic downturn.

2008 Nov 03 03:15 PM