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Abu Dhabi, UAEMonday 10 December 2018

Holiday drinks fall flat as Starbucks reports disappointing sale 

Company on Thursday warned that 2018 global cafe sales growth would be at the low end of its forecast

Starbucks says its 2018 global cafe sales growth would be at the low end of its forecast, after holiday drinks fell flat with US customers during what is traditionally a blockbuster quarter. Andrew Winning / Reuters
Starbucks says its 2018 global cafe sales growth would be at the low end of its forecast, after holiday drinks fell flat with US customers during what is traditionally a blockbuster quarter. Andrew Winning / Reuters

Starbucks on Thursday warned that 2018 global cafe sales growth would be at the low end of its forecast, after holiday drinks fell flat with US customers during what is traditionally a blockbuster quarter.

Shares of the world's largest coffee chain slid 4.6 per cent following the announcement to US$57.75, after closing at $60.55 in regular trade.

Company executives reiterated that Starbucks, which sometimes locates stores across the street from each other, was not losing business to cannibalisation or rising competition from both high-end and low-priced coffee sellers.

But sales at established Americas region cafes rose just 2 per cent in the first quarter ended December 31, as customers added food to their orders: the number of cafe visitors did not budge. Analysts polled by research firm Consensus Metrix expected a sales rise of 3.3 per cent.

"Holiday (limited-time offers) and merchandise did not resonate with our customers as planned," chief executive Kevin Johnson said on a conference call with analysts.

Starbucks offers holiday-themed drinks such as the Chestnut Praline Latte and Gingerbread Latte as well as gift cards, mugs, coffee and tea gift boxes and teddy bears to woo holiday shoppers.

Johnson also blamed the quarter's disappointing same-store sales results on an ongoing shift towards online shopping from brick-and-mortar stores, as well as waning customer interest in the afternoon and evening hours.

Starbucks said it now expects 2018 global same-store sales growth at the low end of its previously-issued view of 3 to 5 per cent.

Company's chief financial officer Scott Maw said Starbucks would continue to "streamline" its operations by removing underperforming and lower-margin merchandise from store lobbies and exiting businesses that don't meaningfully contribute to sales and profits - as Starbucks is doing by closing its Teavana retail stores and selling its Tazo tea brand.

The chain is also working to eliminate bottlenecks that can happen when users of its industry-leading mobile app flood crowded cafes with orders.

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The same-store sales performance and outlook overshadowed the profit boost Starbucks expects to reap from a US corporate tax cut.

Starbucks raised its fiscal 2018 earnings forecast to a range of $2.48 to $2.53 per share, excluding items, from $2.30 to $2.33 per share previously. Mr Maw said Starbucks expects a non-GAAP effective tax rate of 26 per cent for 2018 and beyond, roughly 7 points below prior guidance.

Starbucks has turned to China for growth, planning to more than triple its over 3,000-store network within a decade. It recently opened a massive, showcase Reserve Roastery in Shanghai.

China same-store sales were up 6 per cent and the company's acquisition of 1,300 stores in China helped net income in the quarter to rise to $2.25bn, or $1.57 per share, from $751.8 million, or 51 cents per share, a year ago.

But for the time being, investors want Mr Johnson, who is still overshadowed by his predecessor and current executive chairman Howard Schultz, to deliver more robust growth in Starbucks' home market, with roughly 14,000 stores.

The stock is up 3.2 per cent from a year ago, versus the 44 per cent, turnaround-fueled gain at McDonald's.