Starbucks Takes Full Ownership of East China Business -- Update

By Imani Moise Features Dow Jones Newswires

Starbucks Corp. said Thursday that it will become the full owner of its East China joint venture in a bid to expand its presence in Asia.

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The coffee chain will pay roughly $1.3 billion in cash to buy the 50% stake in the joint venture that it doesn't already own from Taiwan's Uni-President Enterprises Corp. and President Chain Store Corp. At that price, the deal is the largest acquisition in the company's history.

When the deal is closed, Starbucks will operate 1,300 stores in Shanghai as well as Jiangsu and Zhejiang provinces in China. The company has previously said it plans to operate 5,000 stores in China, its fastest-growing international market, by 2021.

"Unifying the Starbucks business under a full company-operated structure in China reinforces our commitment to the market and is a firm demonstration of our confidence in the current local leadership team," said Starbucks chief executive Kevin Johnson.

Starbucks has been looking outside the U.S. for growth after slowing sales at home hammered its stock last year. Mr. Johnson said in an interview earlier this year that China will likely overtake the U.S. as the company's largest market in the next 10 or 15 years.

At the end of last year, Starbucks had 1,811 company-operated and licensed stores in China.

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Taiwan-based Uni-President Enterprises and President Chain Store will also buy Starbucks's 50% stake in President Starbucks Coffee Taiwan Ltd, which operates 410 coffee shops in Taiwan, for $175 million.

Starbucks shares edged up 0.1% to $58.00 premarket and have risen 4.4% so far this year.

Write to Imani Moise at imani.moise@wsj.com

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.

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 said in its earnings release that "ongoing macro pressures impacting the retail and restaurant sectors has us a bit more cautious" going into the fourth quarter. The chain is expected to provide guidance during its earnings call.

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.

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 hasn't yet been approved by government regulators 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 17:33 ET (21:33 GMT)