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Competition cools Starbucks’ sales growth

International
New York - Starbucks’ new chief, who took the job last month, isn’t getting much of a honeymoon.

The shares declined as much as 3.8 percent on Friday after quarterly sales missed analysts’ estimates, renewing concerns that competition and mobile-ordering problems are weighing on growth.

Same-store sales - a key benchmark - rose 3 percent last quarter, the Seattle-based company said on Thursday. Analysts polled by Consensus Metrix had projected a 3.6 percent gain. The company also lowered its earning forecast for the year.

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Starbucks former CEO Howard Schultz speaks at the Starbucks annual shareholders meeting, Wednesday, March 22, 2017, in Seattle. (AP Photo/Elaine Thompson)

The results leave it up to chief executive officer Kevin Johnson to reassure investors that he has a plan for reigniting sales - particularly as cheaper rivals target his company’s market share. McDonald’s has been advertising $1 and $2 drink specials this year, while the Dunkin’ Donuts loyalty programme is drawing more converts.

“It seems likely that slower sales growth in the US may become the new norm,” Jennifer Bartashus, an analyst at Bloomberg Intelligence, said. “There is an awful lot of competition out there.”

Starbucks also has suffered problems with its much-vaunted mobile- ordering technology. As more customers embrace the platform, it has caused traffic jams within cafés.

Starbucks warned earlier this year that the problems were taking a toll on results.

“It isn’t that surprising that they were not able to solve mobile-related traffic issues in one quarter,” Bartashus said. “That type of operational analysis and change takes time.”

Starbucks fell as low as $58.99 in New York trading, the biggest intraday decline in three months. Through Thursday’s close, the shares had gained 10 percent this year, outpacing the 6.7 percent increase of the Standard & Poor’s 500 Index.

Revenue amounted to $5.3 billion in the fiscal second quarter, which ended on April 2. That was short of the $5.42 billion projected by analysts. Excluding some items, profit was 45c a share. That matched analysts’ estimates.

Starbucks missed analysts’ projections in all its major geographic areas, including the China Asia-Pacific region, which is seen as key to its future. Same-store sales in that part of the world rose 3 percent last quarter, compared with a 4.7 percent estimate.

Read also: Starbucks CEO hands keys to successor

Sales also gained 3 percent in the Americas, missing the 3.5 percent projection. In Europe, the Middle East and Africa, the sales fell 1 percent. Analysts were looking for a 0.2 percent increase.

In a conference call with analysts, Starbucks said it can still meet its annual goal of comparative sales in the mid-single digits. Growth had begun accelerating in April, the company said. But earnings will be $2.08 to $2.12 this year, excluding some items, down from a previous forecast of as much as $2.14. Revenue will climb 8 percent to 10 percent.

Johnson, a long-time technology executive, stepped into a CEO job that was held by Howard Schultz, who was responsible for building Starbucks into a household name. Although Schultz is staying on as chairman, providing continuity to the business, the leadership change has made investors nervous. When Johnson’s appointment was first announced last year, the news sent the stock tumbling.

In the US, Starbucks has been trying to improve its lunch selection. Last month, the chain began offering a new line of sandwiches and salads, dubbed Mercato, at about 100 locations in Chicago. The grab-and-go fare is made fresh daily in outside kitchens.

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