Starbucks Misses Growth Expectations in U.S. Stores -- Update

By Julie Jargon 

Starbucks Corp. still hasn't made good on its pledge to return its critical U.S. business to 5% same-store sales growth.

The coffee giant missed sales expectations again in its home market and globally in its fiscal second quarter, with sales up 3% in both regions. Analysts expected growth of 3.7% globally and 3.5% in the Americas, of which the U.S. is by far the largest market.

Starbucks shares fell 2.8% to $58.50 in recent after-hours trading.

Howard Schultz, who stepped down as chief executive earlier this month to focus on building higher-end coffee shops for the chain, implored investors on Thursday to look beyond the recent struggles.

"The best days are in front of us," he said.

Starbucks also said its earnings report will no longer contain forward-looking targets. A spokeswoman said forward guidance will be contained to conference calls with analysts, so that executives "can properly give it the context that it needs."

Chief Executive Kevin Johnson said Starbucks will reach its previously announced mid-single-digit same-store-sales target for the full year despite the softness in the first half of the year. Starbucks reiterated its revenue growth guidance of 8% to 10% for 2017, but said it likely will come out on the lower end of that range.

Starbucks in recent quarters has blamed its sales slowdown on political and economic uncertainty as well as a bottleneck caused by customer crowding related to mobile orders.

Chief Financial Officer Scott Maw said in an interview that the company also needs to speed up service for customers who order inside and at the drive-through. "All of our customers want to be served the right way as quickly as possible," he said.

In addition, he said, Starbucks is being affected by an overall slowdown in the restaurant industry. "It's been pretty tough for restaurants for the last few quarters," he said.

The lower-than-promised sales growth in the U.S. was driven by a 4% increase in the average customer's check; transactions declined by 2%.

The company lowered its full-year earnings guidance to $2.06 to $2.10 a share, down from its previous forecast of $2.09 to $2.11 a share due to plans for increased investments and higher-than-expected charges related to its Teavana stores in shopping malls. That business has struggled as traffic in malls has declined generally, Starbucks said. Mr. Johnson said the company is reviewing strategic actions for them.

Mr. Johnson said Starbucks will invest more in digital-ordering technology and other ways to boost sales growth. He also said moves the company has made to improve speed are paying off. The company said sales in the U.S. improved as the quarter progressed, with same-store sales up 4% in March, and it has seen further sales acceleration in April.

Starbucks also wants to draw more sales at lunch with new food offerings. A new menu of fresh sandwiches and salads made its debut in Chicago earlier this month.

Starbucks earned $653 million, or 45 cents a share, up from $575 million, or 39 cents, the year before. Revenue rose 6% to $5.3 billion. Analysts surveyed by FactSet had forecast earnings of 45 cents a share on $5.4 billion in sales.

Same-store sales in Europe, the Middle East and Africa declined 1% from a year ago. The China and Asia Pacific region posted a 3% increase in same-store sales, with China same-store sales up 7%.

Write to Julie Jargon at [e-mail]

(END) Dow Jones Newswires

April 27, 2017 18:58 ET (22:58 GMT)

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