Photographer: SeongJoon Cho/Bloomberg

Starbucks Tumbles After Asian Growth Engine Fails to Deliver

Updated on
  • Comparable sales of 2 percent falls short of expectations
  • Coffee giant also cites the impact of U.S. hurricanes

Starbucks Corp. didn’t get what it ordered last quarter from its biggest growth opportunity: Asia.

Same-store sales in the region rose 2 percent in the quarter ending Oct. 1, short of the 3.2 percent predicted by analysts. The performance contributed to generally sluggish results, sending the shares down as much as 7.5 percent in late trading.

The slow sales reflect a broader problem for the world’s biggest coffee chain. After saturating much of the U.S. with cafes, it needs overseas markets more than ever to maintain growth. While Chinese demand for coffee is still surging, it’s getting harder for the company to find blockbuster opportunities.

The Seattle-based roaster was also hit by growing pains as the company took charges related to restructuring and refining its operations. Major hurricanes that hit two of the most populous U.S. states also clipped same-store sales growth, the company said.

“We’ve been streamlining the business,” Chief Executive Officer Kevin Johnson said in an interview after the release of results.

Total comparable sales rose 2 percent, short of the estimate of 3.2 percent from Consensus Metrix. After excluding the effects of hurricanes Harvey and Irma -- which mauled Texas and Florida during the quarter and forced Starbucks to close a total of 1,100 locations -- same-store sales growth was 3 percent.

The shares dropped as low as $50.75 in extended trading on Thursday.

Starbucks also took steps to placate shareholders. It boosted its quarterly dividend 20 percent to 30 cents a share. And the company committed to returning $15 billion to investors over the next three years through dividends and stock buybacks.

Excluding some items, profit amounted to 55 cents a share last quarter -- in line with analysts’ forecast. Net revenue was $5.7 billion, short of the estimate of $5.8 billion.

Unilever Deal

Starbucks also announced an agreement to sell Tazo brand to Unilever NV for $384 million, part of an effort to better focus a tea business that has disappointed. It had to close 379 stores from its Teavana division, in part because many locations were in poorly trafficked shopping malls.

Even as overall Asian sales missed analysts’ projections, Chinese demand was strong. Same-store sales gained 8 percent last quarter in the country. 

Starbucks doubled down on the market in July when it announced plans to buy out the partners in its East China joint venture. The company agreed to acquire the remaining 50 percent of the business in a $1.3 billion transaction, giving it complete ownership of about 1,300 cafes in Shanghai and the Jiangsu and Zhejiang provinces.

“With the integration of East China into our company-operated model just around the corner, China represents a significant growth opportunity for the company going forward,” Johnson said.

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