Starbucks Blames Social Unrest After It Misses Third Straight Sales Target -- Update

By Maria Armental 

Starbucks Corp. on Thursday blamed political and social unrest at home and abroad for disappointing results in Europe and the U.S. that resulted in its third consecutive sales-target miss.

Company executives called the quarter an "anomaly," citing terror concerns around the world along with civil unrest and political uncertainty in the U.S. and a "profound weakening in consumer confidence."

"In Starbucks's 24 years of public life, I can't recall a quarter quite like" this, Chief Executive Howard Schultz said during a conference call to discuss third-quarter results.

The company's shares, which have fallen 4% this year, slipped 3% to $56.07 in after-hours trading Thursday, after ending 4 p.m. trading fractionally higher at $57.60.

The Seattle-based coffeehouse chain, which previously projected annual sales to increase 10% or more, now expects just about 10%, with sales at stores open at least 13 months increasing by a mid-single-digit percentage, a slight downward revision.

Meanwhile, the company raised its profit forecast by 3 cents, saying it now expects to make $1.88 to $1.89 a share. A wage increase scheduled to go into effect in October, Chief Executive Officer Scott Maw said during the conference call, has been factored into its guidance and won't affect the profit outlook.

"There's no wavering in our commitment to deliver at least 15% EPS growth every year," Mr. Maw said, adding, "that is true for 2017."

Domestic sales, which account for the bulk of business, rose 8% while comparable sales rose 4% in the most recent quarter. In the year-ago period, the company reported 13% and 8% increases, respectively.

During the conference call with analysts, company executives sought to ease concerns over a possible slowdown in the U.S. and disruption brought on by changes in the company's loyalty program, pledging to return the U.S. business to historic levels of at least 5% comparable-sales increases.

Though company officials had warned some customers may push back against the loyalty program changes, which now link rewards to spending rather than number of visits, on Thursday they said in the latest period the program expanded to 12.3 million active members in the U.S., an 18% increase from the year earlier.

Comparable sales in Europe, Middle East and Africa fell 1%, against analysts' projected 2.8% increase, while overall sales in the region fell 7%, in part tied to volatility in the U.K., its largest market in Europe, and the sale of its stores in Germany, which had been its largest market in continental Europe.

Meanwhile, China and the Asia Pacific region saw a weaker-than-projected 3% increase.

China, a key pillar in its international expansion and which company officials project will overtake the U.S. as its largest single market, saw a 7% increase in comparable sales.

Starbucks, which now has nearly 2,300 stores in China, targets more than 3,400 stores by 2019.

Over all, Starbucks reported profit of $754 million, or 51 cents a share, compared with $626.7 million, or 41 cents a share, a year earlier. Excluding certain items, profit was 49 cents, compared with 42 cents a year earlier and at the high-end of the company's guidance. Revenue rose 7% to $5.24 billion.

Julie Jargon contributed to this article.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

July 21, 2016 21:16 ET (01:16 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.