Starbucks momentum slows as sales disappoint

Coffee chain reaching saturation in home market and consumers jittery after election

Photograph: Bloomberg

Photograph: Bloomberg

 

Starbucks isn’t immune from the slump plaguing the restaurant industry.

The coffee giant cited a “challenging environment” as it posted disappointing quarterly growth and cut its annual sales forecast on Thursday. Starbucks now expects revenue to rise between 8 per cent and 10 per cent this fiscal year. It previously had predicted a double-digit increase.

The results signal that Starbucks’s momentum is slowing, just as Howard Schultz prepares to leave his post as chief executive officer in April.

A shift toward online shopping – coupled with consumer uncertainty that’s lingered from the US presidential election – may be keeping some customers at home. Low grocery prices also are making restaurants seem relatively expensive to Americans.

Another concern: Starbucks no longer has much room to grow in its home market, said Jennifer Bartashus, an analyst at Bloomberg Intelligence.

“Starbucks is really starting to hit the saturation point in the US,” she said. “The question with that is how are they going to continue to grow same-store sales?”

The stock fell as much as 3.8 per cent to $56.26 (€52.60)in late trading after the results were released.

Starbucks’s shares had increased 5.3 per cent this year, outpacing the 2.6 per cent gain of the Standard and Poor’s 500 Index.

Falling short

Same-store sales rose 3 per cent in the first quarter, which ended on January 1st. Analysts surveyed by Consensus Metrix predicted a 3.7 per cent gain for the period.

Sales decreased 1 per cent on that basis in Europe, the Middle East and Africa, compared with a 1.8 per cent growth projection.

They rose 3 per cent in the Americas, short of the 3.9 per cent estimate.

Starbucks’s bottom line fared better. The company posted earnings of 52 cents a share, excluding some items, which matched analysts’ predictions. The company also reaffirmed its profit forecast, saying adjusted earnings will be $2.12 to $2.14 a share.

Starbucks has been trying to improve its food in the US to lure more customers, especially beyond morning hours.

This year, the company is adding fancier items to its menu, including Sous Vide Egg Bites and a gluten-free breakfast sandwich. To attract the on-the-go crowd, Starbucks is also expanding its snack-based meals called Bistro Boxes.

Technology push

Its mobile ordering and payment platform, meanwhile, has helped speed up lines at its US, Canadian and UK cafes.

The company is planning to expand this capability to more markets abroad. In the US, mobile payments already account for about 27 per cent of transactions.

Schultz, who has served two terms as head of Starbucks, will hand the reins to technology veteran Kevin Johnson in April.

The announcement initially jarred investors, but the company has since bolstered its board with nominations for new directors.

The additions include Sam’s Club chief executive Rosalind Brewer; Jorgen Vig Knudstorp, executive chairman of the Lego Brand Group; and Microsoft chief executive Satya Nadella.

Mr Schultz (63) will keep the role of executive chairman of Starbucks. “He’s tried very hard to reassure people that he won’t be far away,” Bartashus said. “I think there’s a little bit of a wait-and-see attitude toward what Kevin Johnson can achieve.”

– Bloomberg