Starbucks’ (SBUX) fiscal Q1 results and the accompanying commentary were more “constructive” than expected, while the early part of Q2 presents challenging trends in China and the Middle East, Morgan Stanley said Wednesday in a report.
Starbucks acknowledged hurdles in its Middle East licensed business due to boycotts of US brands, and the company previously cited China concerns, Morgan Stanley said.
The company is introducing product innovations to address these issues in the short term, though same-store sales assumptions were adjusted downward, the report said.
Starbucks expects low single-digit percentage growth in China’s same-store sales for the rest of the year, down from 4% to 6% anticipated previously, and Q2 expectations are lower, likely flat or negative, before a potential improvement in H2, the report said.
North American same-store sales grew 5% in Q1, topping estimates by investors, the report said.
“Starbucks called out the strength of its most loyal customer, which saw sequential improvement in frequency and record spending in Q1, despite headwinds from the more occasional user that hit in November,” Morgan Stanley said.
The firm has an overweight rating on the coffee chain with a $120 price target.