Starbucks Lowers Long-Term Target, Selling Tazo to Unilever--Update

By Austen Hufford Features Dow Jones Newswires

Starbucks Corp. said it would sell its Tazo brand of teas in the coffee seller's latest move to focus on its core operations.

Continue Reading Below

The company also on Thursday lowered its forecast for long-term profit growth, sending shares down 6.5% in post-market trading, as it also recorded same-store sales growth below its benchmark target and posted an unexpected revenue decline.

Starbucks now expects to have earnings per share growth of 12% or greater in the years to come. It had previously targeted 15% to 20% growth.

The sale of Tazo comes just months after Starbucks closed the last of its Teavana tea shops. Unilever PLC is paying $384 million for the Tazo brand, which is sold primarily in grocery and convenience stores.

Starbucks bought the brand for $8.1 million in 1991. The deal is expected to close later this year and Starbucks then plans to start selling packaged Teavana tea next year.

For its fourth quarter, the company had comparable-store sales growth of 2% globally, driven by increases in the average order price and the number of transactions.

Continue Reading Below

The company reported a U.S. same-store sales increase of 2%, below the company's benchmark of 5% growth.

Hurricanes Harvey and Irma also cut into sales growth, shaving 1 percentage point off both global and U.S. growth.

Still, the company also reported success in its efforts to drive consumer habits through technology and perks. Membership in its rewards program grew 11% to 13.3 million in the U.S. as mobile orders reached 10% of transactions in U.S. company-operated stores.

Starbucks also reported some success in China, where it increased same-store sales by 8%, driven by a 7% increase in transactions. This year, the company has worked to increase its control over stores in the country.

In all for the quarter, the company reported revenue of $5.7 billion, down 0.2% from a year ago. It reported a profit of $788.5 million, or 54 cents a share, compared with $801 million, or 54 cents a share, in the year-ago period.

On an adjusted basis, earnings per share came in at 55 cents.

Analysts polled by Thomson Reuters had expected revenue of $5.8 billion and adjusted earnings per share of 55 cents.

Write to Austen Hufford at austen.hufford@wsj.com

Starbucks Corp. offered a muted outlook for future sales and profit, setting what it says are more realistic targets in a tough environment for restaurants and coffee shops.

Starbucks shares fell more than 5% in post-market trading after the coffee giant missed sales expectations for its fiscal fourth quarter and lowered its long-term profit growth target for the first time in seven years.

"We have not consistently delivered against our long-term financial targets," said Chief Executive Kevin Johnson. He added that the company reset its long-term guidance to "represent performance we can meet or beat in the years ahead."

Starbucks also said it would sell its Tazo brand of teas to focus on its Teavana brand. Unilever PLC is paying $384 million for the Tazo brand, which is sold primarily in grocery and convenience stores.

The chain posted a 2% rise in same-store sales in its home market in its fiscal fourth quarter and reset its long-term annual earnings-per-share growth target to 12% or greater, down from its previous forecast of 15% to 20%. The company said U.S. same-store sales would have risen 3% in the quarter if not for closures and lost business related to Hurricanes Harvey and Irma.

Starbucks also adjusted its long-term annual global same-store sales growth target to 3% to 5%, compared with its previous target of mid-single digit growth.

"The overall retail industry is continuing to go through a significant disruption," Mr. Johnson said in an interview. He said that because Starbucks is still seeing traffic growth while many restaurants struggle to draw in customers, the chain is gaining market share.

When the company reported fiscal third quarter results in July executives warned of challenges ahead due to a weak retail environment. On Thursday, the company posted earnings per share of 54 cents for the quarter, in line with analysts' expectations. But its same-store sales came lower than expected and, in the U.S., fell far short of its historic 5% growth rate. Revenue also dipped unexpectedly.

China was once again the bright spot for the company, generating 8% same-store sales growth. Globally, Starbucks posted 2% growth in same-store sales, missing expectations.

The company reported revenue of $5.7 billion, down 0.2% from a year ago. It reported a profit of $788.5 million, or 54 cents a share, compared with $801 million, or 54 cents a share, in the year-ago period.

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

(END) Dow Jones Newswires

November 02, 2017 18:45 ET (22:45 GMT)