Starbucks Sales Growth Disappoints -- 3rd Update

By Julie Jargon and Lisa Beilfuss 

Starbucks Corp. said profit in its latest quarter increased 16% as the coffee chain drew in more mobile users in the U.S.

But the company missed sales expectations, sending shares down 5.3% in after-hours trading.

Sales at shops open at least a year rose 6% in the latest period, but slightly missed the 6.7% rise analysts anticipated.

Domestic sales drove the increase, with sales at U.S. locations rising 7%. That helped to offset slower growth in Europe, where the company's business has been hurt by terror attacks in Paris and Brussels and where the strong dollar continues to make its drinks and snacks more expensive in foreign currencies. Same-store sales in the Europe, Middle East and Africa division rose a smaller-than-expected 1% in the quarter.

But Starbucks Chief Operating Officer Kevin Johnson said that because 72% of the Starbucks stores in that market are now licensed to other operators, their results don't figure into the same-store sales figure, which includes just company-operated stores. Systemwide sales in EMEA, which include both licensed and company-operated stores, grew 4% in the quarter. That view may have accounted for the share price decline in after-hours trading, because analysts were expecting the EMEA segment to post 3.4% growth. "We need the investment community to think about system sales in EMEA," Mr. Johnson said.

The company continues to grow internationally, on Thursday opening its first store in South Africa -- long seen as a gateway to African markets. Worldwide, Starbucks counted nearly 24,000 shops at the end of March, up 8.3% from a year earlier. Chief Executive Howard Schultz on Thursday highlighted transaction growth in China, which rose 5%. The company grew its store base across Asia by 18% in the latest quarter. Starbucks plans to open a Starbucks at the entrance to the new Shanghai Disneyland, scheduled to open this summer. Mr. Schultz told investors that it is likely to become the highest-grossing Starbucks in the world.

Starbucks has worked to diversify beyond its coffee roots and is in the midst of a five-year plan to double its U.S. food revenue. Digital initiatives such as a new mobile app have also helped cafes operate more efficiently, in turn boosting sales.

Starbucks said mobile order and usage doubled year over year, with the company processing 8 million mobile order and pay transactions a month. According to analysts at RBC, users of the mobile app spend three times more than the average customer.

The company recently changed its loyalty program to reward customers for how much they spend rather than how often they visit. The number of active rewards members in the U.S. now totals 12 million, up 16% from a year ago. Last week alone, Mr. Johnson said in the interview, 280,000 new members signed up for the loyalty program.

Starbucks reported a profit of $575.1 million, or 39 cents a share, up from $494.9 million, or 33 cents a share a year earlier. Revenue increased 9.4% to $4.99 billion from $4.56 billion a year earlier.

Write to Julie Jargon at [e-mail] and Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

April 21, 2016 18:19 ET (22:19 GMT)

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