Photographer: Victor J. Blue /Bloomberg

Starbucks Declines on Concern About Loyalty-Program Backlash

  • Analyst downgrades stock, saying customer traffic may slow
  • Coffee giant is scheduled to report earnings on April 21

Starbucks Corp. fell the most in more than two months after Deutsche Bank AG downgraded the stock, saying that changes to the company’s loyalty program may hurt customer traffic.

The shares fell as much as 4.2 percent to $58.37 on Tuesday in New York, marking the biggest intraday drop since Feb. 5. Starbucks had gained 1.4 percent this year through Monday, while the Standard & Poor’s 500 Index slipped 0.1 percent.

Starbucks revamped its U.S. loyalty program to reward customers based on dollars spent, rather than store visits. Though Starbucks is making the right strategic decisions, the changes could contribute to weaker same-store sales in the short term, Deutsche Bank analyst Brett Levy said in a research note Tuesday. He downgraded his Starbucks rating to hold from a buy recommendation.

“The April 12 loyalty-program changeover could result in modest disruptions to
U.S. near-term traffic and sales trends, in our opinion,” he said. “We do not welcome this potential added risk to the story.”

The loyalty program has been part of Starbucks’ growth strategy in recent years, especially in the U.S. It has locked in millions of Americans by offering free food and drinks after they spend money at its cafes. The Seattle-based company is scheduled to report second-quarter results on April 21.

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