Analysts keen on Starbucks despite weak holiday sales

Starbucks shares fell 5 percent on Friday after the company reported weak holiday-quarter sales, indicating near-term troubles were far from over, but analysts said the brand’s strength and a growing Chinese fanbase would help it ride out the rough patch.

Over the past year, the world’s largest coffee chain has hit a few bumps as it tries to boost sales — the rollout of mobile ordering that was supposed to attract more customers is still facing issues and it struggles to fill stores in the afternoons and evenings.

On top of that, weak limited-time offers and holiday-themed coffees did not resonate with customers, hurting sales during its biggest sales quarter.

“Subpar 1st quarter top-line results, but we ask if this is a ‘broken story’ or just a great brand with huge moats and large growth opportunities rolling through a rough patch,” Morgan Stanley analyst John Glass said in a note.

“We’d argue the latter, but acknowledge a year into the comp deceleration, its show-me time,” Glass said, and added that “Starbucks is the retailer with the highest customer frequency of any category we can think of.”

Some analysts said the company had made inroads solving its problems.

Starbucks has been adding working hours at some US stores and is focusing on workflow, adding one or two more baristas to service orders during peak hours. It is also testing sending text messages to customers when their orders are ready.

The company is also doubling down in the Chinese market — where the cafe culture is taking off — to offset stagnant sales in the US. China same-store sales were up 6 percent and Starbucks said it is planning to more than triple its over 3,000-store network in the country within a decade.

Sales at established Americas region cafes in the quarter to Dec. 31 were up just 2 percent, falling short of Street estimates of a 3.3 percent rise.