According to Jefferies analyst Andy Barish, Starbucks (SBUX) will need time to “brew a fresh pot.”

On Tuesday, before the market opened, Barish downgraded the coffee giant’s shares to “underperform” and lowered his price target to $76. He cited “a lot of uncertainty over the next 12 months” after the “big run-up” in the last six weeks since Chipotle’s (CMG) Brian Niccol was named CEO.

Since August 1, shares have risen almost 30% to around $95. In a note to clients, Barish said he expects “the stock to stall here and begin to pare back ‘Niccol earnings,’ particularly as fundamentals come into greater focus.”

Niccol, who started his new role on September 9, has signaled that changes are coming. But change is challenged by larger issues such as operations, culture, value perception and technology, Barish said.

He expects fourth-quarter and fiscal 2025 guidance to be “disappointing” with EPS growth in the low single digits and same-store sales declining.

Barish called 2025 a “throwaway year” as Starbucks looks to reinvest and stabilize the business so it can bounce back in fiscal 2026 and beyond.

In an open letter, Niccol said he has been spending time in stores and with employees since becoming CEO on August 13, 2024.

In the US, he admitted: “We don’t always deliver. It can feel transactional, menus can feel overwhelming, the product is inconsistent, the wait is too long, or the handover is too rushed.”

Last quarter, U.S. same-store sales fell 2%. According to Jefferies and data analytics platform Placer.ai, these trends likely continued into the third quarter as the coveted pumpkin spice debut was met with weak foot traffic.

“Fourth-quarter earnings per share on Oct. 30 will not be good,” Barish wrote. The distasteful reception to the Pumpkin Spice launch is an example of the challenges Starbucks faces in the US, but he pointed out that “cost cutting” during former CEO Laxman Narasimhan’s tenure could improve profits.

In its most recent quarterly results, the company reiterated its 2024 guidance, which it revised after the second quarter.

The company said it expects global sales growth in the low single digits in 2024, below the previous range of 7% to 10%, which itself was below a previous forecast of 10% to 12% for the fourth quarter of 2023.

Global and U.S. same-store sales were expected to decline in the low single digits or remain flat, up from 4% to 6% previously. China’s same-store sales are expected to post a single-digit decline, compared to previously expected low-single-digit growth.

The story continues

—

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].

Click here to get the latest retail stock news and events to better inform your investment strategy