Starbucks Brews Stronger U.S. Sales Growth -- 2nd Update

By Julie Jargon Features Dow Jones Newswires

Starbucks Corp. said on Thursday that it reached the sales growth rate investors had been seeking in its key U.S. market but the coffee giant warned of potential problems in the months ahead.

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After missing the mark in the U.S. for several quarters, the chain said it was able to return to 5% same-store sales growth in its fiscal third quarter because customers are spending more money in the stores.

But the coffee chain missed earnings expectations and conceded that the number of visits to its U.S. cafes remained stagnant.

Starbucks Finance Chief Scott Maw told investors that "the combination of trends in the quarter and ongoing macro pressures impacting the retail and restaurant sectors overall has us a bit more cautious" going into the fourth quarter.

Starbucks lowered its full-year earnings-per-share forecast to $1.96 to $1.97, down from its previous forecast of $2.06 to $2.10. This is the second time this fiscal year that the company has lowered its earnings guidance. The company also said it expects revenue growth for the year to come in at the low end of its previous forecast of 8% to 10%. Starbucks shares fell nearly 6% in after-hours trading.

The company's growth has really slowed in its largest U.S. market in the past year and the company has cited a number of reasons ranging from customers turned off by congestion at the mobile order pickup area to economic uncertainty.

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Chief Executive Kevin Johnson described the Thursday results in an interview as "very strong, given the retail disruption that's unfolding."

Starbucks reiterated on Thursday that declining mall traffic has been hurting brick-and-mortar retailers as consumers have shifted their spending online. Starbucks said it is closing all 379 of its Teavana mall-based stores, which was part of the reason it missed earnings expectations, as it had to take charges from the closures.

The company reported earnings of 47 cents per share, down 7.8% from a year ago, and below analyst expectations of 55 cents per share. Excluding one-time items, it earned 55 cents per share.

The company also missed expectations for global same-store sales, which were dragged down by its China Asia Pacific business where stores in Japan have been underperforming, Mr. Johnson said. China was the bright spot of the quarter, posting same-store sales growth of 7%.

The company on Thursday said it is spending $1.3 billion to buy the 50% stake of the business in East China that it doesn't already own from a joint venture partner there, or 1,300 stores. Starbucks currently owns and operates 1,500 stores in China and has said it plans to have 5,000 Starbucks shops in China by 2021.

"We've been in China for 18 years and we're in it for the long game," Mr. Johnson said, explaining that having control over its entire business in China will enable Starbucks to expand more quickly and better leverage its scale.

The deal needs regulatory approval in China.

The company reported revenue of $5.66 billion, up 8.1% from a year ago, versus expectations of $5.76 billion.

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

(END) Dow Jones Newswires

July 27, 2017 19:20 ET (23:20 GMT)