By Evie Liu

Starbucks stock tumbled 7% on Wednesday after the company posted second-quarter earnings that missed Wall Street expectations the day before. The latest results have pushed many analysts to voice concerns about the firm's short-term outlook.

The coffee chain is working to turn around its business that has been suffering from weak sales since last year. But the latest result suggests that it might take time for improvements to kick in, and the stock market -- worried about a potential recession -- might not have the patience to wait.

In the second quarter, earnings were down 40% from a year ago, while same-store sales declined 1% driven by a 4% drop of transaction volume in the North America market. CEO Brian Niccol said the numbers don't yet reflect the progress Starbucks has made.

"Following the 2Q25 earnings call, we believe investors are better understanding that Starbucks' turnaround requires patience vs. a quick powerful inflection," Oppenheimer analyst Brian Bittner wrote in a Wednesday note.

BMO analyst Andrew Strelzik echoes that sentiment: "Exiting the quarter, it's more evident the turnaround timeline will be more extended and near-term EPS pressure greater than previously expected," he wrote.

Morgan Stanley analyst Brian Harbour said that expectations for how fast Starbucks' plans could work seemed to have gotten ahead of themselves earlier in the year.

While Starbucks CEO said earnings aren't a good measure of success right now, other reported metrics aren't turning positive either, wrote Harbour, who cut his price target for the stock to $95 from $105. The stock was trading at around $79.07 on Wednesday.

Niccol said the company will invest more in labor deployment to improve efficiency and drive transaction growth -- but that would raise store operating costs. The company also plans to remodel some coffeehouses, starting from New York City and Southern California this summer, which would also drive up capital spending and cut into earnings.

Harbour expects Starbucks' third-quarter results to be even worse than the second quarter. In the coming months, investors will closely watch not only U.S. sales, but also how the company finds opportunities to improve margins, wrote the analyst.

Starbucks' fiscal 2025 estimates will likely be "incredibly noisy," wrote JPMorgan analyst John Ivankoe, since it's difficult to model the impact of various initiatives under way and set a bar for investors. He has an Overweight rating and $100 price target for the stock.

Jeff Farmer from Gordon Haskett Research Advisors noted that Starbucks management didn't offer any timelines or expense guidance for the new staffing model, while providing limited detail on how tariffs and coffee price inflation could impact margins.

The broader health of the coffee segment is also concerning as the industry faces mounting demand headwinds. Despite the stock's recent fall, Farmer remains on the sidelines "with estimates poised to fall and still elevated uncertainty across multiple fronts." He has a $80 price target for the stock.

Still, outside of the U.S., things seem to be improving. After four quarters of negative comparable sales trends, international markets finally saw a 2% growth again. Eight out of Starbucks' top 10 international markets have returned to flat or positive comparable sales growth, including China, according to the firm.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 30, 2025 13:13 ET (17:13 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.