Starbucks Blames Restaurant Slump as It Reins in Forecast

  • Growth in U.S., Europe was weaker than estimated last quarter
  • Company coping with ‘challenging environment’ for restaurants

Starbucks Corp. 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 Thursday. Starbucks now expects revenue to rise between 8 percent and 10 percent this fiscal year. It previously had predicted a double-digit increase.

The results signal that Starbucks’ 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 U.S. 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 U.S.,” she said. “The question with that is how are they going to continue to grow same-store sales.”

The stock fell as much as 4.8 percent to $55.65 in New York on Friday after the results were released. Before the drop, Starbucks’ shares had increased 5.3 percent this year, outpacing the 2.6 percent gain of the Standard & Poor’s 500 Index.

Falling Short

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

Sales decreased 1 percent on that basis in Europe, the Middle East and Africa, compared with a 1.8 percent growth projection. They rose 3 percent in the Americas, short of the 3.9 percent estimate.

Starbucks’ 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 U.S. 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 also is expanding its snack-based meals called Bistro Boxes.

Technology Push

Its mobile ordering and payment platform, meanwhile, has helped speed up lines at its U.S., Canadian and U.K. cafes. The company is planning to expand this capability to more markets abroad. In the U.S., mobile payments already account for about 27 percent 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 CEO Rosalind Brewer; Jorgen Vig Knudstorp, executive chairman of the Lego Brand Group; and Microsoft Corp. CEO Satya Nadella.

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.”

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