Starbucks slides after ‘unacceptable’ performance leads to U.S. store closures
Starbucks will triple the pace of US store closures in its coming fiscal year, while accelerating plans to expand in China, as intensifying competition and higher input costs slow its domestic growth forecasts
By Martin Baccardax
Starbucks Corp. shares slumped in pre-market trading as investors reacted to plans by the world’s largest coffee chain to close as many as 150 U.S. stores and cafes in its upcoming fiscal year amid intensifying competition from rivals.
Starbucks said it sees global comparable same-store sales growth of around one per cent in the current quarter, its third, sharply lower than the consensus forecast of three per cent, and plans to close U.S. stores at triple the normal pace while it looks at strategic options, such as the licencing of company-owned stores, in order to gain a foothold in under-represented markets, including China, where it has seen consistent same-store sales growth of around four per cent. Several investment banks, including Morgan Stanley and Barclays, moved to cut their price targets on the stock in the wake of the announcement, with the former dropping it to US$59 from US$72 and the latter to US$60 from US$65.
“While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” said CEO Kevin Johnson. “We must move faster to address the more rapidly changing preferences and needs of our customers. Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organisation and enhance focus on our core value drivers which serve as the foundation to re-accelerate growth and create long-term shareholder value.”
Starbucks shares fell more than four per cent in pre-market trading Wednesday, indicating and opening bell price of US$55.05 each, a move that would tip the stock into negative territory for the year. That compares to a 6.8 per cent advance for rival Dunkin’ Brands Group, Inc. and a 4.15 per cent decline for McDonald’s Corp.
