Starbucks looks to China to heat tepid sales

TEAVANA GETS AXE

NEW YOR K • Starbucks Corp.’s latest quarterly sales missed Wall Street’s projections in much of the world, putting pressure on the company’s plan to turn China into its biggest growth engine.

Same- s t or e sales i ncreased four per cent last quarter, missing the 4.8 per cent estimate of analysts. The company also admitted defeat in its effort to run a chain of tea shops: Starbucks will shutter its Teavana stores, a move that will eliminate 3,300 jobs.

The tepid results followed Starbucks’ agreement earlier Thursday to buy out its East China joint venture for US$ 1.3 billion, the biggest deal in the company’s history. The move allows it to take full control of 1,300 cafes in the world’s most populous country, where it sees a nascent coffee culture becoming a huge market.

With Starbucks reaching a saturation point in many places, China looms larger than ever.

“The growth opportunity in China is unparalleled,” Kevin Johnson, the company’s chief executive officer, said in an interview.

Excluding some items, earnings amounted to 55 cents in the in the third quarter, which ended July 2. That matched analysts’ estimates. Revenue climbed to US$5.66 billion, short of the US$5.76 billion projection.

The earnings report sent Starbucks s hares down as much as 3.2 per cent to US$ 57.60 in extended trading. The stock had gained 7.2 per cent this year through Thursday’s close.

Tea is more popular than coffee in China, but Starbucks is making inroads. Same- store sales rose seven per cent in the country last quarter.

Starbucks operates about 2,800 locations in China, with plans to hit 5,000 by 2021. The business there will eventually be bigger than its operation in the U. S., Johnson said.

Starbucks’ same- store sales have risen for seven straight years, but slowing growth has put Johnson under pressure. The former tech executive, who took over from l ongtime CEO Howard Schultz in April, also has been contending with other headaches.

The company’s popular mobile app has created traffic jams at its cafes, with customers bunching up in pickup areas. Johnson said on Thursday that Starbucks has added “digital order managers” to 1,000 stores and has improved its ability to quickly serve customers.

The sales gain in the U. S. was five per cent, which Johnson said was fuelled in part by customers buying more food. The company has pushed to sell more edibles for years, with meals and snacks accounting for about 21 per cent of U.S. sales.

But the effort has been marked by stumbles, including menu misfires and complaints that food was too pricey or the portions were too small. The growth in food sales in primarily coming at lunch, Johnson said.