Reuters
Published Jul 28, 2017 12:00PM ET
Starbucks shares tumble on fears of slowing U.S. growth
By Sruthi Ramakrishnan
(Reuters) - Starbucks Corp's (O:SBUX) shares were on track for their worst one-day decline in five years on Friday as the coffee chain's latest quarterly report triggered concerns of a slowdown in sales in the United States, its biggest market.
While Starbucks' profit met Wall Street expectations in its first quarter under new CEO Kevin Johnson, the results suggested that growth in the coffee chain's member loyalty program was slowing, a trend that could impact future sales.
Starbucks' U.S. rewards membership rose 8 percent in the quarter ended July 2 - a rate that lags the 18 percent increase seen a year earlier and slower than the previous quarter's 11 percent rise.
"Customers were choosing to spend their money elsewhere, Johnson told CNBC on Friday, calling it a "short-term phenomenon."
But analysts said the slowdown was a direct result of changes Starbucks made to its rewards program, that, while benefiting the company, left many customers unwilling to sign up.
Starbucks last year tweaked the program to award customers points for every dollar spent at its cafes, a departure from its practice of giving points for every purchase, putting customers buying cheaper items at a disadvantage.
The slowdown in the loyalty program adds to concerns about Starbucks' U.S. business that is already struggling in the face of mounting competition from restaurants, meal kit sellers and convenience stores.
"With (loyalty) growth continuing to slow, we fear U.S. same store sales are unlikely to maintain the mid-single digit range that the market has come to expect," Credit Suisse (SIX:CSGN) analysts said in a report.
Sales at Starbucks' mainstay U.S. cafes open at least 13 months rose 5 percent in the latest quarter.
Analysts cast doubts about the Seattle-based company's ability to meet its long-term earnings and revenue targets after Starbucks also trimmed its current-quarter earnings forecast on Thursday.
Starbucks has said it expects to grow earnings by 15 percent to 20 percent and revenue in the double percentage digits over the long term.
Those targets "may no longer be realistic," analysts at Wedbush Securities said, pointing to several quarters of underperformance and the lack of "a clear path" to same-store sales re-acceleration.
Eight analysts lowered their 12-month targets on Starbucks' share price to as low as $56. The median price target is $66.
Starbucks' shares were down 8.3 percent at $54.55 and the company was on course to shed about $7 billion in market value.
Written By: Reuters
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