Starbucks Holiday Sales Disappoints, Plans for Recovery

Starbucks Corp reported disappointing holiday-quarter sales, blaming holiday offerings for failing to draw in customers. The company, however, stated that it has plans to recover customers with the brand’s strength and a strong growth in China.

“Our holiday merchandise that we had did not perform up to our expectations,” said Kevin Johnson, Chief Executive Officer at Starbucks. “That’s not anything to do with the core execution of the company.”

Same-store sales in the US could have been more than a percentage point higher if not for this weakness, he added.

The coffee chain giant’s net earnings were up 199.4% to $2.25 billion, 58 cents per adjusted share, on total revenue of $6.07 billion for the quarter ending December 31. In the 1st quarter of the fiscal year, Starbucks’ total net revenues for the same period from the previous year were $5.73 billion, or 5.9% lower than this year’s.

The company fell short of analyst expectations, with analysts forecasting revenues of $6.18 billion and adjusted earnings per share of 57 cents.

Same-store sales in the US grew 2%, supported by a 2% increase in the average check size. Same-store sales in Europe, the Middle East, and Africa were also down 1%, falling short of expectations as analysts’ forecasted same-store sales to be up 1.6%.

However, China same-store sales were up 6% and the company’s acquisition of 1,300 stores in China helped net income in the quarter to surge to $2.25 billion, or $1.57 per share, from $751.8 million, or 51 cents per share, a year ago.

“China grew revenues 30% in the 1st quarter, with the strategic acquisition of East China positioning us to accelerate our growth in the key China market,” said Johnson in a statement.

While same-store sales in China presented solid performances, the China and the Asia Pacific segment hit same-store sales growth of 1%. Sales in Japan, however, were hurt by weak sales around Frappuccino offerings, according to Chief Financial Officer Scott Maw.

Starbucks said it is planning to more than triple its over 3,000-store network in the country within a decade as it recently opened a large, showcase Reserve Roastery in Shanghai.

“Our US Starbucks stores, on average, do about $32,000 a week., The Roastery in Shanghai after 8 weeks of operations is doing, on average, twice that, not each week but each day,” said Howard Schultz, the company’s executive chairman.

Starbucks plans to boost sales in the US by luring in customers in the afternoon with discounts and promotions. It also plans on continuing to leverage mobile ordering and digital marketing to increase the number of times consumers visit the coffee shop.

Starbucks shares rose 0.28% to $58.15 in after-hours trading. In the last session, its shares plunged 4.23% to close at $57.99.

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