Starbucks suffers worst rout in two years
Starbucks Corp. suffered its biggest stock decline in almost two years after cutting its forecast, renewing fears about sputtering growth at the world’s largest coffee chain.
The shares dropped as much as 8.2 percent to USD54.63 in New York, the biggest intraday plunge since August 2015.
Slowing growth in the U.S. forced Starbucks to cut its profit forecast for the fiscal year. The company also admitted defeat in its effort to run a chain of tea shops, saying it will shutter its Teavana stores, a move that will eliminate 3,300 jobs.
The tepid outlook adds the pressure on Chief Executive Officer Kevin Johnson to accelerate growth in China, which the company is increasingly targeting as a key market. Last week, Starbucks announced plans to buy out its East China joint venture for $1.3 billion, the biggest deal in the company’s history. This will allow it to take full control of 1,300 cafes in the world’s most populous country, where it sees a nascent coffee culture becoming a huge market.
With Starbucks reaching a saturation point in many places, China looms larger than ever as key to the chain’s prosperity.
“The growth opportunity in China is unparalleled,” Kevin Johnson, the company’s chief executive officer, said in an interview.
Same-store sales increased 4 percent last quarter in the third quarter, which ended July 2. That missed the 4.8 percent estimate of analysts.
Tea remains more popular than coffee in China, but Starbucks is making inroads. Same- store sales – a key benchmark – rose 7 percent in the country last quarter.
Starbucks currently operates about 2,800 locations in China, with plans to hit 5,000 by 2021. And the business there will eventually be bigger than its operation in the U.S., Johnson said.
Starbucks’ same-store sales have risen for seven straight years, but slowing growth has put Johnson under pressure. The former technology executive, who took over from longtime CEO Howard Schultz in April, also has been contending with other headaches.
The company’s popular mobile app has created traffic jams at its cafes, with customers bunching up in pickup areas. Johnson said that Starbucks has added “digital order managers” to 1,000 stores and has improved its ability to quickly serve customers who order and pay through their phones.
As Starbucks focuses on improving its digital app, the company is stepping back from its tea business. The company said it will shutter all 379 of its Teavana retail stores, with the majority closing by next spring.
Starbucks bought the Teavana brand in 2012 for about $620 million, betting that it could find growth with the tea chain’s locations in malls. But as Americans feverishly embrace e-commerce, and visit fewer shopping centers, the business has struggled. MDT/Bloomberg
