RBC: Starbucks is grappling with a 'new normal'

The retail apocalypse is hurting Starbucks’ bottom line as less people head to malls and shopping centres where they might step inside a coffee shop.

RBC Capital Markets analyst David Palmer says this is “
Starbucks‘ new normal” and is merely a function of the new retail landscape.

“Starbucks is facing a more difficult operating environment than the recent past,” wrote Palmer in a note out Friday. “While the chain did deliver a superior 5% SSS growth result in F3Q, the outperformance was short-lived and trends soon returned to the low- to mid-single digit range.

“This ‘new normal’ for the company’s growth rate seems to be a function of both a new reality in retail and diminishing incrementally of Starbucks’ growth enablers of food/ beverage innovation, digital initiatives (mobile order & pay), and rewards membership growth.”

RBC maintains its outperform rating of Starbucks’ stock and price target of $US63 — in line with Wall Street consensus, according to Bloomberg.

“We see stable near-term trends and an attractive valuation level for one of the best large-cap growth stories in consumer,” Palmer said. “We believe the stock’s current multiple provides downside support, while the company works to reaccelerate growth towards the second half of FY18.”

In an exclusive interview with Business Insider earlier this month, Palmer said the coffee chain can unlock growth and new revenue by improving its digital program as well as its food offerings.

Shares of Starbucks climbed as much as 0.96% Friday morning, but were little changed by 11 a.m.

Starbucks is down 1.6% this year.

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