Starbucks gets boost from $7B Nestle deal

Thanks to Nestle, Starbucks just came into some serious cash.

With the Swiss food giant agreeing to pay the coffee chain $7.15 billion for the right to sell Starbucks coffee products at retailers, shareholders can expect to receive their portion of the proceeds via buybacks and dividends. But the company will also funnel investment into its two key markets: the U.S. and China.

“The two big growth engines for the company from a marketplace standpoint are the U.S. and China,” Chief Executive Officer Kevin Johnson said in a phone interview on Monday. He pledged to continue to expand in both countries while funding a digital push to counteract slowing U.S. growth.

While growth in China has been explosive, Starbucks saw U.S. comparable sales increase just 3 percent in the latest fiscal year — the lowest rate in at least six years. It’s facing more competition from up-and-coming regional coffee houses and steep discounting from fast-food rivals. Consumers also are shopping more at home, shunning brickand-mortar retail for e-commerce.

That’s sent Starbucks shares down 5.2 percent in the 12 months through May 4. Investors liked Monday’s Nestle deal, though, with shares rising 2.8 percent on Friday after news of the transaction surfaced. On Monday, the stock initially rose as much as 2.4 percent to $59.04 before paring the gain.

“They have to really reinstill confidence that they can continue to put up same-store sales growth in the U.S., which is its core market,” said Bloomberg Intelligence analyst Jennifer Bartashus. “They’ve seen traffic fall off in the afternoon — the strategy now is to get occasional customers back into stores, and into stores more often.”