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Reigniting Starbucks' sales first order of business for new CEO

By: Leslie Patton, Bloomberg News
April 28, 2017 Updated: April 28, 2017 at 1:55 pm
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A Starbucks coffee shop in Peoria, Illinois, on Jan. 25, 2017. MUST CREDIT: Bloomberg photo by Daniel Acker.

Starbucks's new chief, who took the job this month, isn't getting much of a honeymoon.

The shares declined as much as 5.4 percent in early trading 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 Thursday. Analysts polled by Consensus Metrix projected a 3.6 percent gain.

The results leave it up to Chief Executive Officer Kevin Johnson to reassure investors he has a plan for reigniting sales - especially 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 program is drawing more converts.

"It seems likely slower sales growth in the U.S. may become the new norm," said Jennifer Bartashus, an analyst at Bloomberg Intelligence. "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 cafes. 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 $58.01 in premarket trading in New York. 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 April 2. That was short of the $5.42 billion projected by analysts. Excluding some items, profit was 45 cents a share. That matched analysts' estimates.

Starbucks missed analysts' projections in all its major geographic areas, including the China Asia-Pacific region that's 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.

They 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 began accelerating in April, the company said.

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