Starbucks Inc. (SBUX) - Get Report shares were lower Friday after Goldman Sachs cut its rating on the stock to "neutral," citing concerns over the pace of growth in China, where the world's biggest coffee chain is targeting a significant expansion.
Goldman analyst Karen House also clipped her price target on Starbucks by $7 to $68 a share, but said she remains "reasonably confident" the group's move to drive more digital engagement can support comparable sales growth in the United States of between 3% and 4%. However, House also noted "incremental concerns" regarding slowing China growth, where the group plans to double its store footprint to 6,000 over the next four years.
Starbucks shares were down 1.4% to $63.32.
Last month, Starbucks, unveiled an aggressive expansion strategy in China that could be at risk from slowing consumer sales in the world's second-largest economy and guided investors to modestly softer long-term earnings growth.
Starbucks said it sees long-term earnings growth of around 10%, down from a previous forecast of around 12% and said same-store sales expansion will likely grow at a 3% to 3.4% rate even after a newly-unveiled partnership with Uber Eats.
"Coffee is one of the fastest growing beverage categories globally and our over 350,000 partners around the world who wear the green apron are now serving 100 million customer occasions a week," CEO Kevin Johnson told investors at the time. "We have long been performance driven while staying true to our mission and values to create positive change and global social impact. The leadership team and I believe Starbucks is better positioned than ever for continued success."
Retail sales in China rose at at the weakest pace since 2003 last month, while other portions of the economy, including new car sales, have slumped to the weakest in more than a decade as the damage from the ongoing trade war between Washington and Beijing takes its toll.
Starbucks is also facing intense competition from a new market entrant, Luckin, a China-based startup that plans to have 4,500 stores in the world's biggest coffee market by the end of this year.
BMO Capital Markets's Andrew Strelzik, who rates the stock at "market perform" with a $60 target, said that while the group's longer-term China strategy is "well understood" and a core growth driver, it does come with risks.
"(Starbucks') same-store sales trajectory is not as strong as it has been, given rising cannibalization and competitive factors, combined with slowing economic growth in the region, which likely will contribute to choppy same-store sales trends in the near- to medium-term," " Strelzik argued in a client note Thursday. "