Tuesday 25 April 2017

Starbucks cafe sales hot, but Christmas forecast disappoints

Lisa Baertlein

Starbucks delivered a disappointing profit forecast for the holiday quarter on the heels of strong cafe sales and profit growth, sending its shares lower.

Starbucks' Americas division and its Europe, Middle East and Africa unit last quarter turned in surprisingly strong sales at established restaurants. But its up-and-coming Asia region fell short during an economic cool-down in China that has roiled global stock markets.

The world's biggest coffee chain said on Thursday its holiday quarter that began September 28 would be dented by the effect of the strong US dollar.

The company, known for starting its fiscal years with conservative estimates, also issued a 2016 forecast with little upside for investors who are grappling with concerns that shares of the Seattle-based chain are too hot after rallying more than 60 percent over the past year.

Starbucks shares fell as much as 3pc in after-hours trading, before settling at $62, down 0.8pc.

Global sales at cafes open at least 13 months rose 8pc in the fiscal fourth quarter, beating the 6.9pc rise expected by analysts polled by research firm Consensus Metrix.

China's cooling economy has global investors on edge and already has been blamed for soft results from KFC and Pizza Hut parent Yum Brands.

Starbucks executives said they have not seen a systemic slowdown in China, noting that comparable sales continued to accelerate into October.

The company declined to break out same-store sales for China, home to 1,800 Starbucks cafes, or about 8pc of the company's total. Starbucks, which expects China to one day be its largest market outside the United States, said it would have 3,400 cafes there by 2019.


Chief Executive Howard Schultz attributed the better-than-expected fourth-quarter cafe sales growth to several new initiatives at the chain, which recently improved its food and is rolling out new drinks such as the Toasted Graham Latte.

Among other things, Schultz said US cafe service improved and turnover fell after Starbucks raised pay and improved benefits for cafe workers. The company added new delivery services and introduced mobile technology that allows customers to skip lines by ordering and paying for their drinks via mobile devices.

"Starbucks is playing the long game," Schultz said on a call with analysts.

Fourth-quarter net income jumped 11pc to $652.5m, or 43 cents per share, matching analysts' average target according to Thomson Reuters.

Starbucks estimated first-quarter earnings of 44 cents to 45 cents, excluding items. Analysts on average had a target of 47 cents for the quarter, the company's biggest for revenue, according to Thomson Reuters I/B/E/S.

The company forecast fiscal 2016 earnings, excluding items, of $1.87 to $1.89 per share, in line with analysts' average call for $1.88 per share.


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