SBUX Starbucks Corporation

Coffee chain's shares jump after hours despite sluggish U.S. customer traffic

By Julie Jargon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 2, 2018).

Higher prices helped Starbucks Corp. deliver its strongest quarterly sales gain in more than a year, but the coffee giant is still struggling to attract more customers to U.S. stores.

Shares in Starbucks rose 9% in after-hours trading Thursday on its report that 4% same-store sales growth in its critical home market beat expectations of about 2%-to-3% growth, driving same-store gains globally for the chain in its latest quarter.

However, the growth came entirely from a 5% rise in the average ticket for the period. The number of transactions in the U.S. fell 1% from a year earlier.

"Transaction growth is our largest opportunity," Operating Chief Rosalind Brewer said in an interview, adding that traffic improved at the end of the quarter thanks to new cold coffee drinks.

Pressure to improve customer traffic is mounting as the Seattle-based chain finds itself between lower-priced rivals like Dunkin' Brands Group Inc. and higher-priced specialty coffee shops.

The just-completed period marked the first full quarter that Chief Executive Kevin Johnson led the company without the presence of longtime leader Howard Schultz, who stepped down as chairman in June. The company's challenges recently attracted activist investor William Ackman, who disclosed at 1.1% stake in Starbucks last month. Mr. Ackman so far has said he agrees with what Mr. Johnson is doing.

Under Mr. Johnson, the company is focusing on knowing the preferences of more visitors so it can better target them with offers that appeal to their ordering behavior. Starbucks recently opened its mobile order app to everyone -- not just to customers signed up for its rewards program -- and brought in 4 million new digitally registered customers in the past quarter, Ms. Brewer said.

The number of guests in its loyalty program is also growing, with 15.3 million active members in the U.S., up 15% from a year ago.

In the afternoon, when the chain has experienced weak traffic, Starbucks is reducing the time employees spend on administrative tasks so they can focus on customer service. It is also testing healthier Frappuccino drinks, which tend to be an afternoon treat. In addition, Starbucks is closing underperforming stores in overcrowded urban markets where rents are high and slowing the growth of licensed stores in airports and supermarkets while expanding into new cities in the Midwest and South.

Starbucks is also trying to cater more to consumers who increasingly want to drink their coffee on the go. The company plans to open more stores with drive-through windows, which it says ring up higher sales than stores without them. The chain is also testing delivery in Miami.

U.S. companies have been raising prices on everything from airline tickets to candy bars after years of low inflation, and Starbucks is no exception.

The chain has been increasing prices at a faster rate than independent coffee shops, fast-food chains and doughnut shops for years.

Ms. Brewer said the company has raised prices by 1% to 2% on different items in various markets throughout the year. The ticket growth in the quarter also came from customers ordering higher-priced menu items and adding extra items to their orders.

Globally, Starbucks posted a 3% increase in same-store sales, beating the 2.4% rise analysts had expected.

Revenue for the fiscal fourth quarter, which ended Sept. 30, jumped 11% to $6.3 billion, beating estimates of $6.27 billion. Starbucks reported a profit of $755.8 million, or 56 cents a share, compared with $788.5 million, or 54 cents a share, a year earlier.

Excluding one-time items, Starbucks earned a profit of 62 cents a share, ahead of analysts' expectations.

For the newly begun fiscal year, the company projected revenue growth of 5% to 7%. The company expects global comparable-store sales growth near the low end of the 3% to 5% range, compared with analysts' estimates of 2.5%.

Starbucks sees adjusted earnings per share of $2.61 to $2.66 for the fiscal year, compared with analysts' forecasts of $2.63. The company also expects to add about 2,100 new stores. It opened 1,985 net new stores in the just-ended year.

--Aisha Al-Muslim contributed to this article.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

November 02, 2018 02:47 ET (06:47 GMT)

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