Beset by disappointing sales growth in the U.S. due in part to continuing congestion in stores from mobile order-and-pay customers, Starbucks on Thursday reported second-quarter sales that fell below Wall Street expectations.
Comparable sales — or sales at stores open at least a year — grew just 3 percent in the U.S. for the quarter ended April 2, the same as the previous quarter and down from 7 percent in the same quarter last year.
Transactions — the number of purchases — fell, though the average amount per purchase grew.
Kevin Johnson, in his first earnings call with investors as Starbucks CEO, argued that the tough first half of the fiscal year is setting up a "narrative of 2017 as a year of two halves."
"We are confident we've turned a corner," he said.
Starbucks executives said the sales numbers were beginning to look better by later in the quarter, with comp sales up 4 percent in March and continuing to accelerate in April.
Executives said they've been training store employees, and boosting staffing during peak hours, to deal with stores they say are overcrowded with customers waiting to pick up their mobile order and pay for beverages.
They're also testing a "digital order manager" that allows baristas to see on a tablet the status of all orders for the store — whether in-store, drive-through or mobile order and pay. The barista can check off on the tablet when a mobile order and pay order is ready and the digital manager automatically sends a message to the customer's phone.
Newly introduced food, such as sous vide egg bites and gluten-free breakfast sandwiches, also contributed to accelerating sales growth, while the Unicorn Frappuccino helped drive store traffic, the company said.
The company also touted its continued expansion in China, where comp sales grew 7 percent in the quarter.
Teavana mall stores, however, were a drag on sales. Executives sounded ominous when talking about the future of some of those stores.
Starbucks bought Teavana for $620 million in 2012 and currently operates 350 Teavana mall stores.
On Thursday, Starbucks executives said many of those stores have been reporting negative comp sales and losses, affected by decreasing foot traffic and malls. The rate of decline was worse than expected through the quarter, with further drops expected at the stores doing most poorly.
"We're investigating options for those at-risk stores," said Starbucks chief financial officer Scott Maw.
Longtime CEO Howard Schultz, now the company's executive chairman, took part in the conference call, acting as closer and trying to reassure investors that after a tough first half of the year, "the best is in front of us."
For the quarter, Starbucks posted earnings of 45 cents per share on sales of $5.29 billion.
Wall Street analysts were expecting earnings of 45 cents on sales of $5.41 billion, according to a Reuters consensus estimate.
Starbucks shares were down nearly 5 percent, to $58.40, in after-hours trading Thursday evening.
Source: New Starbucks CEO asserts 'we've turned a corner' on problems crimping sales growth
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