While second-quarter profits met Wall Street’s expectations, Starbucks’ total sales fell short of what investors had expected.
China, where Starbucks is adding 500 stores a year, could soon also have the busiest Starbucks store anywhere.
In mid-June, the company plans to open a store at the entrance to Shanghai Disneyland, a move that could result in “Starbucks’ highest-grossing retail store overnight,” Chairman and CEO Howard Schultz said during a conference call Thursday with investors to discuss Starbucks’ second-quarter earnings.
Underscoring the global nature of Starbucks’ rapidly expanding business, Schultz was speaking by phone from Johannesburg, South Africa, where Starbucks on Thursday opened the first of 150 planned stores in the country.
That means Starbucks is now operating in 72 countries, up from 68 last year and 65 in 2014.
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It added 350 net new stores in the quarter, bringing the total number worldwide to 23,921. It’s on track to end 2016 with 25,000 stores globally.
Many of those new stores are in China, where the government has been trying to shift its economy and where Starbucks has a huge investment.
Starbucks’ China market saw 18 percent revenue growth and 5 percent transaction growth, according to the company.
The revenue growth is most likely a reflection of all the new stores Starbucks is opening in China — from the current 2,000 stores to 3,400 by the end of 2019.
The 5 percent transaction growth is the “highest anywhere in the world,” Scott Maw, Starbucks’ chief financial officer, said in an interview.
The company declined to break out profit growth for China, but overall profit growth in its China-Asia Pacific segment was 15 percent, Maw said.
“Starbucks is just getting started in China,” Schultz said in the conference call.
Overall, though, the company’s global sales saw a diminished rate of sales growth: Worldwide comparable store sales rose 6 percent, down from 7 percent last year.
The China-Asia Pacific segment saw a slowdown in comparable sales growth. Year-over-year growth in comparable sales — meaning sales in stores open at least a year — slowed to 3 percent in the China/Asia Pacific region, down from 12 percent growth a year ago.
The Europe, Middle East and Africa (EMEA) segment also saw a comparable sales slowdown to 1 percent growth, versus 2 percent a year ago.
But Maw said 72 percent of the stores in that segment are licensed stores, which are not counted in comparable store sales. If both the licensed and company-owned stores are included, sales grew 4 percent, he said.
Despite its increasing worldwide presence, Starbucks’ growth is still mainly driven by sales in the Americas, where comparable sales grew 7 percent, the same as last year.
Overall, the company racked up $4.99 billion in sales for the quarter ended March 27, up 9 percent from $4.56 billion last year.
It earned $575.1 million in profit, or 39 cents a share, up 18 percent from 33 cents per share last year.
While Starbucks’ earnings per share matched analysts’ expectations, its sales failed to meet their estimate of $5.03 billion.
Starbucks shares fell $2.42, or 4.0 percent, to $58.22, in after-hours trading after the earnings news.
“The expectation for Starbucks has been set so high that any time they don’t come in and blow away the numbers,” the share price may dip, said Tuna Amobi, an equity analyst with S&P Global Market Intelligence.
“The Street might be trying to digest the valuation” and attempting to figure out if the premium price on the company’s shares is justified, he said.
Amobi stuck to his “buy” rating on Starbucks shares, saying “China was a surprising positive for us. And the domestic segment continues to do well.”
Meanwhile, some customers’ disgruntlement with a change to Starbucks’ rewards program, which the company announced earlier this year, wasn’t reflected in the quarterly numbers.
Membership in the program increased 16 percent year-over-year and 8 percent over the first quarter, the company said.
Starbucks added 900,000 rewards-program members in the U.S. since the first quarter, for a total 12 million members in the U.S.
The rate of sign-ups has accelerated since the change was announced, Maw said, with 280,000 new people joining since the rejiggered program was launched last week.
And spending per member from those in the rewards program is up across the board, company executives said during the earnings call.
The revamped program rewards customers based on dollars spent rather than by the number of purchases.