Starbucks Reaches Deal To Sell Tazo Tea Brand

Starbucks (NASDAQ:SBUX) has announced that it has reached a deal to sell its Tazo tea business to Unilever (NYSE:UL) for nearly $400 million. Unilever has agreed to buy the Tazo brand and its related recipes, intellectual property and inventory. Kees Kruythoff, president of Unilever North America said, “Tazo’s solid position in the fast-growing specialty tea segment, coupled with Unilever’s tea expertise, presents a fantastic growth opportunity.”

Starbucks acquired Tazo in 1999 for $8.1 million, giving the company a more-than 47-times return on investment. The Tazo business has logged $112 million in sales over the last twelve months. Starbucks’ Teavana business recorded $1.6 billion in sales over the same time period.

Now, Teavana will be the company’s primary vessel for tea sales. Starbucks has already announced that it is shuttering its Teavana stores, but says it is not giving up on the brand. Starbucks president and CEO Kevin Johnson said, “We continue to see significant growth in our tea business through our Teavana brand, and this transition supports our strategy to elevate the premium tea experience for our customers.” Starbucks wants to build Teavana into a $3 billion business over the next five years.

Starbucks’ fourth quarter and full-year 2017 financial results were slightly weaker than what Wall Street was expecting. Fourth quarter revenue was $5.7 billion, lower than the $5.81 billion analysts expected. Last year in the fourth quarter, the company reported revenue of $5.71 billion.

Net income for the quarter fell to $788.5 million, down 1.6 percent year-over-year. On an adjusted basis, earnings for the quarter came in at 55 cents per share, meeting estimates.

Major hurricanes hitting the United States had a negative effect on same-store sales growth. Hurricanes Harvey and Irma, which hit Texas and Florida during the quarter, forced Starbucks to close a total of 1,100 locations. Total comparable store sales grew 2 percent during the quarter, lower than the 3.2 percent increase expected by analysts.

Full-year 2017 revenue grew 5 percent to $22.4 billion, and adjusted earnings per share grew 11.4 percent to $2.06 per share. Starbucks also boosted its quarterly dividend 20 percent to 30 cents a share and committed to returning $15 billion to investors through dividends and stock buybacks over the next three years.

Shares of the company fell more than 6 percent dive in after-hours trading after news of the deal emerged. Year-to-date, Starbucks stock is down 7.3 percent.

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