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Starbucks problems to linger through next year - analysts

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Starbucks problems to linger through next year - analysts

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By Sruthi Ramakrishnan (Reuters) – Starbucks Corp’s <SBUX.O> slow service at stores and rising competition from high-end coffee shops are likely to pressure its performance next year, analysts said, after the U.S. coffee-chain reported disappointing fourth-quarter sales on Thursday. The company has been struggling to fill orders at stores after it launched a mobile order-and-pay service to reach more customers, but that has caused congestion at its pickup counters, leading to slower service and frustrated customers. Starbucks shares are up 4 percent over the past 12 months, hugely underperforming the S&P 500 index <.SPX> that has surged 20 percent. The company’s shares were largely flat in premarket trading on Friday. While the sales environment had been challenged for most chain restaurants in the quarter, Starbucks seemed to be struggling to keep up with the customer flow, as mobile order-and-pay becomes more popular, Instinet analyst Mark Kalinowski said in research note. “We do believe that Starbucks may be struggling with in-store customer flow more than the Street believes.” Kalinowski cut his price target to $63 (£48) from $67. The median price target on the stock is $63, still 15 percent above its $54.87 close on Thursday. Starbucks has been bleeding customers to boutique coffee sellers like Intelligentsia and lower-price rivals including McDonald’s Corp <MCD.N> , which is selling small McCafe espresso drinks for $2. The company said on Thursday it was working to improve the time taken to service customer orders at peak morning hours, open up its mobile order-and-pay service to non-members, and bring in more innovative food items. Cowen & Co analyst Andrew Charles analyst, however, said the company should focus on building out its beverage menu as food items have lower margins. “We would prefer to see beverage sales accelerate given outsized foodsales growth has weighed on Americas gross margins by 80-90 basis points in the last 3 quarters,” Charles said. Several analysts said they had anticipated that Starbucks would temper its long-term target for earnings growth. The Seattle-based coffee chain said it expects to grow 12 percent or more, compared with its previous estimate of 15 percent to 20 percent. It also cut its global long-term same-store sales growth forecast to 3 percent to 5 percent from 4 percent to 6 percent.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sayantani Ghosh)
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