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Starbucks profit meets Wall Street view, shares fall

Starbucks profit meets Wall Street view, shares fall

Kevin Johnson, who succeeded Howard Schultz as CEO this month, on Thursday presided over an earnings call where the company cut its full-year profit target on the heels of disappointing second-quarter sales and stalling growth from its main business in the United States.

The company's ever-crucial USA market sales saw tepid gains, a concern that was on the minds of investors ahead of the earnings reveal.

Revenue amounted to $5.3 billion in the fiscal second quarter, which ended April 2. That growth was not as strong as Wall Street had expected, though per-share earnings of 45 cents exactly matched expectations.

Overall, comparable store sales ticked up 3 percent in the US, missing Wall Street estimates of 3.7 percent.

"Teavana unfortunately is going to be part of the mall problem but Starbucks is insulated from it and we continue to open many, many Starbucks stores around the world", he concluded.

For the 13-week period ending April 2, Starbucks reported total net revenue grew 6% to $5.3 billion while same-stores sales were up 3% both globally and the key Americas market. "Our Teavana mall stores have not been immune with many reporting negative comps and operating losses for some time".




Starbucks paid $620 million in cash for Teavana in 2012. Internationally, Scott Harlan Maw, Starbucks executive vice president and chief financial officer, said Teavana sales are up 40 percent in Japan and China.

Shares in the company fell 4.9 per cent to US$58.30 after Starbucks also announced that it was reviewing its Teavana business after that chain's mall stores dragged down overall sales.

Domestically, Starbucks has been trying to improve its lunch selection. "But, the rate of the decline coming through last holiday and into the second quarter is worse than we had forecast and we are expecting further declines at a number of at-risk Teavana mall stores".

Johnson began the call by referencing a Wall Street Journal article that stated more retail stores have closed in the first quarter of calendar year 2017 than in all of 2016, and "that more retail stores are expected to close in the USA this year than closed in any year during the Great Recession that began in 2008". The company's measures to reduce congestion due to mobile orders have started showing results since March.

Starbucks attributed the decline in transactions to a change in its loyalty program that led to people no longer splitting their orders to tally additional rewards points. In Q2 2107, the company saw 8% growth in average spend per active reward member - the highest growth over a prior year ever. The deal, much like Starbucks' other deals, was aimed mostly at bringing a product into its stores.

"As we enter Q3, Mobile Order & Pay continues to be a powerful driver of comp, revenue, and attach".

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