Starbucks Disappoints Following Poor Sales of Holiday Drinks

On Thursday, coffee house chain Starbucks Corp. warned its global sales growth in 2018 would be at its low end of the forecast it released earlier, after its holiday drinks failed to attract interest with customers in the U.S. during what has traditionally been a blockbuster quarter.

The largest coffee store chain in the world saw its shares drop as much as 4.6% following its announcement in afterhours trading.

Executives reiterated that the company, which at times locates its stores across from one another, was not losing its business to proper cannibalization or increased competition from both low-priced and high-end coffee sellers.

However, sales at its established cafes in the Americas region rose only 2% during its fiscal first quarter that ended December 31, as clients added food to orders. The total number of café visitors remained the same. Analysts were expecting sales for the quarter in the Americas to rise 3.3%.

CEO Kevin Johnson during an analysts’ conference call said that holiday offers, which are limited-time only, and merchandise did not resonate with customers the way it was planned.

Starbucks has drinks that are holiday-themed like Gingerbread Latte and Chestnut Praline Latte along with a lineup of mugs, coffee, tea gift boxes, teddy bears, and gift cards to entice holiday shoppers.

Johnson blamed the disappointing sales at same-stores during the quarter on a shift towards shopping online from traditional brick and mortar locations, and the waning customer interest in afternoon as well as evening hours.

Starbucks announced that it is now expecting global sales in 2018 at its same-stores to have growth at the low end of its forecast that was issued previously of between 3% and 5%.

CFO Scott Maw saw that the company would continue streamlining operations through removing underperforming as well as lower-margin merchandise from its store lobbies along with exiting businesses that do not contribute meaningfully to its sales or profits, as it is doing through closing Teavana stores and selling it tea brand Tazo.

The coffee house chain is working as well to eliminate the bottlenecks that happen when users of its mobile app, that leads the industry, flood crowded cafes with their orders.

The performance of same-store sales and it outlook helped to overshadow the boost in profit Starbucks is expecting to reap from a corporate tax overhaul in the U.S.

Starbucks increased its earnings forecast for fiscal 2018 to between $2.48 and $2.53 a share, and excluding certain items from between $2.30 and $2.33 a share previously.

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