Starbucks (SBUX ) posted 7% higher January same-store sales. Citigroup downgraded the shares to hold from buy.
Analyst Mark Kalinowski says the 7% same-store sales rise is a key part of the downgrade, as he had forecast 10% growth. He says the miss hints at growing traffic issues. Kalinowski says he had thought 30%-plus growth in the Starbucks Card over the December quarter would lead to accelerating traffic gains in January, but he now fears underlying fundamentals may be weaker than expected (he notes the organic monthly comparison is the lowest number seen in 37 quarters). He also says upside to operating margins looks more limited than he thought. The analyst cut his 25-cent second-quarter EPS estimate to 24 cents, his $1.18 fiscal 2005 (ending September) forecast to $1.17, and his $1.44 projection for fiscal 2006 to $1.43.