Starbucks tanks on revenue miss, to sell Tazo tea brand to Unilever

Key Points
  • Starbucks fiscal fourth-quarter revenue missed analysts' expectations, sparking a selloff after the market's close.
  • Starbucks has been struggling with weaker same-store sales, as traffic in its U.S. stores has slowed.
  • Starbucks revised long-term guidance to EPS growth of 12%, down from previous target of 15% to 20%.
Starbucks drops on revenue miss
Starbucks drops on revenue miss

Starbucks reported revenue that missed analysts' expectations on Thursday, sending shares down more than 3 percent. The miss shows the Seattle cafe chain continues to regain its footing amid a more challenging retail and restaurant landscape in the U.S.

Here's how the company did compared with what Wall Street expected:

  • Adjusted EPS: 55 cents vs. 55 cents expected according to Thomson Reuters
  • Revenue: $5.7 billion compared to $5.80 billion projected, according to Thomson Reuters
  • Same-store sales: Up 2 percent vs 3.3 percent growth projected, according to StreetAccount

Starbucks' cafes have been hurt by slowing foot traffic at the mall and changing dining habits, as U.S. consumers increasingly dine at home. This past quarter, Starbucks was also hurt by several severe hurricanes that hit the U.S. and led to store closures.

Global comparable-store sales rose 2 percent, driven by a 2 percent gain in the average amount customers were spending and a 1 percent increase in the number of their transactions. Excluding the impact of Hurricanes Harvey and Irma, which struck the U.S. in September, global comparable sales were up 3 percent.

In the U.S., its largest market, comparable-store sales were up 3 percent, excluding impact from the hurricanes. In the Americas, comparable-store sales were up 3 percent, compared to 3.3 percent anticipated by analysts, according to StreetAccount.

As result of its disappointing performance, Starbucks is revising its long-term projections. It now expects long-term annual earnings per share growth of at least 12 percent, down from 15 percent to 20 percent.

"A balanced conversation of our performance over the past two years acknowledges that we have not consistently delivered against our long-term financial targets," the company said during in its earnings call.

Long-term, Starbucks is targeting annual global comparable-store sales growth of 3 percent to 5 percent and annual consolidated net revenue growth in the high-single digits.

Starbucks had net sales for the quarter of $5.7 billion, flat with the same quarter the year prior.

It reported a net income of $788.5 million, or 54 cents a share, compared to $801 million, or 54 cents a share, a year ago. On a non-GAAP basis, Starbucks earned 55 cents a share, in line with Wall Street estimates.

To counter sales weakness in the U.S., Starbucks, has been investing in its digital business, continues to grow its membership reward program and is focusing on on-trend drinks like plant-based beverages. Consumers are increasing switching to soy and almond milk in their coffee and other drinks.

Starbucks is also working to streamline its non-coffee business. It announced on Thursday plans to sell its Tazo tea brand to Unilever for $384 million. The deal is expected to close in the fourth quarter. Tazo had sales of $112.5 million over the past year, Unilever said in a press release.

Instead, Starbucks will focus on growing its coffee drinks and Teavana tea business outside of its stores. It previously said it will shutter all 379 Teavana locations by spring 2018.

Starbucks posted stronger results in its China Asia Pacific division. China, its second largest and fastest growing market, saw comparable sales grow 8 percent.

Starbucks increased its cash dividend 20 percent to 30 cents per share, payable on Dec. 1 to shareholders of record as of Nov. 16. As result, its leverage ratio dropped one notch.

The company also announced a new co-branded credit card with Chase.

WATCH: Starbucks misses on top line

Starbucks misses on top line
Starbucks misses on top line