Starbucks Misses on Revenue Despite Record Quarter -- 2nd Update

Starbucks Corp.'s domestic business is struggling despite signs that the broader economy is strengthening.

Like other food and beverage retailers, Starbucks has experienced slowing sales in the U.S. as the coffee market has grown crowded. Consumers have more options for their caffeine fix, from high-end gas station coffee to cold bottled coffee sold in supermarkets.

Starbucks said it expects the resulting slow traffic to extend into its second fiscal quarter.

Chief Executive Kevin Johnson said the company is trying to broaden its customer base by opening up mobile ordering and payment to people who aren't part of its loyalty program. Starting in March, anyone will be able to use the coffee chain's mobile app.

Starbucks said it added 1.4 million active Starbucks Rewards members in the U.S. in the quarter, bringing the total up 11% year-over-year to 14.2 million. The company has been trying to use the program, mobile ordering and digital marketing to draw customers in more often. "Our ability to reach a larger percentage of customers with mobile is a big opportunity," Mr. Johnson said in an interview.

The chain is also trying to draw in people during the slower afternoon period with discounted items and promotions.

Starbucks posted a 2% rise in same-store sales in its home market and globally in its first quarter. Analysts polled by FactSet expected Starbucks to post a 3% increase in global same-store sales for the quarter, with a 3.2% increase in the Americas.

Mr. Johnson said same-store sales in the U.S. took a hit in the quarter in part because of holiday merchandise sales that fell short of expectations.

The bright spot in the quarter was China, where Starbucks stores posted 6% same-store sales growth and 30% revenue growth.

Starbucks's per-share earnings got a 79-cent boost from its move to acquire the remaining 50% stake in its East China joint venture. At year-end Starbucks had more than 3,100 company-owned stores in China. Last year, the company also closed a deal to sell its interest in a Taiwan joint venture, which helped its bottom line.

Overall, Starbucks reported a profit of $2.2 billion, or $1.57 a share, compared with $751.8 million, or 51 cents a share, in the year-ago period. Excluding items such as a tax benefit and proceeds from the sale of its Tazo brand to Unilever, Starbucks earned 58 cents a share, beating expectations by 1 cent. Revenue rose 6% to $6.1 billion.

The company said that the majority of savings from a lower corporate tax rate will go to the bottom line. The chain plans to invest some of the savings into increased wages and expanded employee benefits.

Write to Julie Jargon at julie.jargon@wsj.com and Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

January 25, 2018 18:53 ET (23:53 GMT)