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Jan 26, 2017

Starbucks misses sales expectations as Americas locations disappoint

Starbucks Nitro Cold Brew coffee

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Starbucks Corp (SBUX.O) on Thursday trimmed its full-year revenue forecast and reported a smaller-than-expected rise in quarterly sales at established restaurants in the Americas, sending its shares down 3.8 per cent in after-hours trade trade.

The world's biggest coffee seller said visits to U.S. stores region were down in a sign the company may be succumbing to the stubborn slump bedeviling the broader restaurant industry.

Starbucks Chief Operating Officer Kevin Johnson told Reuters the disappointing Americas results were primarily due to operational challenges caused by congestion at drink pickup sites after the number of cafes reaping more than 20 per cent of transactions from mobile orders doubled to 1,200 during the fiscal first quarter, which ended Jan. 1.

Chief Executive Howard Schultz said on a conference call: "This is a great problem to have and a problem that we know how to solve. This is not rocket science."

Sales at Americas region cafes open at least 13 months were up 3.0 per cent for the first quarter, but missed analysts' average forecast of a 3.9 per cent rise, according to research firm Consensus Metrix.

U.S. same-store sales were also up 3.0 per cent while the actual number of transactions was down. Starbucks recently changed its loyalty program to focus on dollars spent rather than transactions. Adjusting for that change, Starbucks said traffic was flat.

The Seattle company forecast 2017 revenue growth of 8.0 to 10 per cent, down from prior call for a double-digit rise.

Johnson, the chief operating officer, also pinned some blame on macroeconomic weakness that is causing pain throughout the restaurant industry.

Revenue rose to US$5.7 billion from $5.4 billion a year earlier as net income attributable to Starbucks rose to US$751.8 million from US$687.6 million.

The revenue was less than the US$5.8 billion average target of analysts compiled by Thomson Reuters. Adjusted earnings per share of 52 cents met expectations.

"Despite (Starbucks') relative consistency and outperformance vs. peers, it isn't completely immune to a meaningful deterioration in retail traffic," Stephens analyst Will Slabaugh said in a client note.

The Americas region contributed 62 per cent of Starbucks' total net revenue in the latest fiscal year.

Much of that came from the United States, where Starbucks and other chains have been battling direct rivals as well as unusually low grocery prices.

Starbucks shares fell US$2.20 to US$56.26 in extended trade.