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Starbucks Americas sales disappoint on softer traffic

Friday, October 31, 2014 - 06:35
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Starbucks Corp's early re-launch of its popular Pumpkin Spice latte drink failed to heat up business at its US cafes, disappointing Wall Street and sending the company's shares down almost 5 per cent.

[SEATTLE] Starbucks Corp's early re-launch of its popular Pumpkin Spice latte drink failed to heat up business at its US cafes, disappointing Wall Street and sending the company's shares down almost 5 per cent.

The world's biggest coffee chain said a 1 per cent increase in traffic contributed to a 5 per cent gain in sales for Americas-region cafes open at least 13 months.

But that result fell short of the 6.2 per cent same-store sales gain expected by analysts polled by Consensus Metrix.

The US-dominated Americas region contributes the majority of Starbucks revenue. Sales for the region rose 6 per cent for the third quarter, bolstered by a 2 per cent increase in traffic. "We grew traffic, but it was at a bit of slower clip," Troy Alstead, Starbucks' chief operating officer, told Reuters.

Free coffee giveaways and other battles for breakfast customers were not to blame for Starbucks' traffic deceleration, Chief Executive Officer Howard Schultz said on a call with analysts. "This is not a Starbucks issue. There is nothing external in terms of competitive issues," said Schultz, who added that the rise of online and mobile shopping has resulted in fewer people visiting shopping malls and other retail areas during the winter holiday season and the weeks leading up to it.

The report from the world's biggest coffee chain came on the heels of disappointing news from breakfast rivals McDonald's Corp and Dunkin' Donuts parent Dunkin' Brands.

While Starbucks reported stronger same-store sales than those chains, its growth paled in comparison to Chipotle Mexican Grill Inc's outsized 19.8 per cent jump in same-restaurant sales for the latest quarter.

The Seattle-based company's net income was US$587.9 million, or 77 cents per share, for the fiscal fourth quarter that ended Sept 28. That compared with a loss of US$1.23 billion, or US$1.64 per share in the year ago quarter, when it booked a large charge related to ending its grocery coffee distribution deal with Kraft.

Starbucks also forecast fiscal 2015 revenue growth of 16 to 18 per cent, including more than US$1 billion in incremental revenue from the planned acquisition of Starbucks Japan.

It now expects earnings excluding items in the range of US$3.08 to US$3.13. The company previously forecast earnings growth at the low end of a range of 15 to 20 per cent. The new forecast falls in the middle of that range, Chief Financial Officer Scott Maw told Reuters.

This holiday season, the company is giving away 13 "Starbucks for Life" passes to North American users of its Starbucks loyalty card or mobile pay service. Winners will get one free food or drink selection per day for 30 years.

Shares of Starbucks fell US$3.68 to US$73.64 in after-hours trading.

REUTERS