Starbucks stock reaches its lowest point in two years amid uncertainties surrounding demand in China and the United States, casting a shadow over its future prospects.

Starbucks stock hits a two-year low due to uncertain demand in China and the United States, raising concerns about the company's future. The fluctuating demand clouds its outlook, prompting questions about its ability to navigate challenging market conditions and maintain growth momentum in key regions.

Starbucks (SBUX.O) shares plunged by 15% to their lowest level in nearly two years on Wednesday as the coffee giant revised its annual forecasts downward due to sustained weak demand from price-sensitive U.S. consumers and a slower-than-anticipated economic rebound in China.

The implementation of price increases last year prompted customers to opt for home-brewed coffee over cafe visits, denting sales for chains like Starbucks. This resulted in the company reporting a decline in same-store sales for the first time in almost three years. Danilo Gargiulo, a senior analyst at Bernstein, expressed concern over the sustained challenges, particularly in China, and cautioned about the absence of positive indicators.

Deutsche Bank downgraded Starbucks to a "hold" from "buy," and numerous brokerages slashed their target prices for the stock. Starbucks now anticipates full-year comparable sales to either slightly decline or remain flat globally and in the U.S., a stark contrast to the previous estimate of 4% to 6% growth. Furthermore, the company revised its per-share profit growth projection to flat or low-single digits, compared to the prior range of 15% to 20% growth.

CEO Laxman Narasimhan attributed the shift in consumer spending patterns to increased selectiveness among customers, especially as pandemic stimulus funds are largely exhausted. He highlighted customers' preference for home-prepared food over dining out, reflecting the company's sales trends during the quarter. Jefferies' analysts expressed skepticism about Starbucks' strategy for new product launches, suggesting a more prudent approach focused on core menu items, value offerings, promotions, and loyalty programs.

Starbucks' forward price-to-earnings ratio stands at 20.88, slightly lower than industry peers such as McDonald's (MCD.N) and Restaurant Brands (QSR.TO).

Source: Reuters