Jefferies Sends Shockwaves: Starbucks Hit With Rare ‘Underperform’ Rating

Starbucks is reeling after Jefferies slapped the coffee giant with an uncommon “underperform’ rating, shaking confidence in its much-publicized turnaround strategy. Shares slid in early trading as investors digested the grim new outlook and pointed questions surrounding its future.

The Wall Street firm says Starbucks has failed to tempt coffee fans back to its stores, with weak traffic, lighter spending, and a lackluster digital push all weighing on performance. The news is sparking renewed debate about whether Starbucks’ golden era could be fading fast.

Can Starbucks rebound from Wall Street’s cold shoulder?

Jefferies’ downgrade comes at a vulnerable moment for Starbucks, as efforts to revamp operations and revitalize its ‘Back to Starbucks’ campaign have fallen flat. Despite investments to speed up service and upgrade stores, the hoped-for boost in customer visits has not materialized.

Analysts argue that Starbucks' heavy focus on hot drinks and in-store experiences may not be effective in today's market. Consumers, especially younger ones, are shifting toward cold beverages, drive-thrus, and digital orders, areas where Starbucks is lagging behind fast-moving rivals.

Did you know?
Starbucks once claimed more than one-third of China’s specialty coffee market, but its share dropped to just 14% by 2024 as rivals like Luckin Coffee surged.

Will China’s woes doom the iconic coffee chain’s recovery?

China, once Starbucks' most promising growth engine, is currently facing significant challenges. The coffee chain’s share in China has collapsed from 34% to just 14% in five years. Aggressive discounting and local flair from brands like Luckin Coffee have lured away huge numbers of customers.

Even deep price cuts and fresh menu additions couldn’t arrest the trend, with same-store sales in China turning flat after a stretch of declines. There are quiet rumblings that Starbucks might even divest a majority stake in its China business to stem the bleeding, with private equity bidders circling.

Jefferies calls out deep troubles at Starbucks

Starbucks' challenges extend beyond its global expansion. Jefferies highlighted persistent issues with store traffic, staff turnover, slower spending, and weaker-than-expected app engagement. The firm’s $76 price target signals almost 20% downside from recent share prices, a gloomy forecast for a global brand.

The company has already hit pause on aggressive store openings and is now pouring resources into redesigning existing locations and fixing back-end inefficiencies. Starbucks’s management suspended annual guidance, a rare move reflecting deep uncertainty about near-term performance.

Analysts warn of rough road ahead for new CEO

New CEO Brian Niccol faces pressure to deliver results as he reshapes the brand’s approach and responds to shifting market trends. Jefferies and other skeptics warn that the turnaround could still be a long, bumpy ride requiring more adaptation to local tastes and consumer habits.

Starbucks’ ability to bounce back will hinge on reconnecting with customers, innovating beyond tradition, and reclaiming its edge in fiercely competitive markets. The next year may prove pivotal and could redefine the future for America’s most famous coffee brand.