Starbucks Plans a Delivery Service as Sales Growth Slows
Starbucks Plans a Delivery Service as Sales Growth Slows
NEW YORK ( TheStreet ) --Wall Street took executives at Starbucks to task for slowing U.S. same-store sales growth in the third quarter and a weakerearnings outlook than the company shared three months ago.
But amid the ruckus, Wall Street may have lost sight of a few things Starbucks mentioned.
Starbucksreported fiscal fourth-quarter net sales of $4.18 billion, below the $4.23 billion Bloomberg consensus estimate. Earnings were in line with forecasts of 74 cents a share. The Starbucks Americas segment was singled out as a disappointment -- same-store sales rose 5%, shy of the 6.2% gain projected by analysts polled by Bloomberg. In the third quarter, Starbucks Americas reported a same-store sales increase of 6%.
The topic of a U.S. sales letdown was such a hot-button issue that Starbucks Chairman, President and CEO Howard Schultz diverted from his prepared remarks to shoot down the notion the company was struggling. Starbucks Chief Operating Officer Troy Alstead seemed to undercut his boss, noting on the earnings call that the company is "feeling the impact of consumer concern," and that "we are not satisfied with 1% traffic growth in the Americas."
Customer traffic to Starbucks Americas increased 1% in the fiscal fourth quarter, moderating from a 2% improvement in the third quarter.
The cautious comments on the consumer spending environment in the U.S. mirrored those of Dunkin' Donuts Chairman and CEO Nigel Travis last week in a post-earnings interview with TheStreet .
Schultz sought to stay on the offensive with analysts. "We see no indication whatsoever from any competitive threat," and the company does "not have a throughput issue," referring to the expansion of Starbucks' menu into more complex beverages and food causing long lines and lost sales. Starbucks reiterated its fiscal 2015 global same-store sales growth outlook of a mid-single digit percentage, but conveyed more caution on earnings amid investments in numerous areas of the business, including mobile ordering and payment.
Fiscal 2015 non-GAAP earnings are expected to be in a range of $3.08 to $3.13 a share, or an increase of 15% to 18%. Starbucks' previous earnings growth outlook, shared three months earlier, was 15% to 20%.
However, beyond Wall Street's concerns with the quarter, Starbucks did provide insight ona host ofthings that are key to both its short-term outlook and future. TheStreet takes a look at several.
1. Delivery Service
In the second half of 2015, Starbucks will launch a food and beverage delivery service. Details on the initial test markets and operating structure were scant, with the company saying it's "very early days" and it's working on a "multiple number of solutions" to handle the distribution system.
A partnership with Google ( Google Express ), Amazon or EBay ( EBay Now ), which are companies that have begun to lay the foundation for vast same-day delivery networks, could be an option for Starbucks. Another could be Uber , the on-demand driver service sweeping the country. Uber is now integrated with the Starbucks mobile app.
Same-day delivery is the next opportunity for retailers with significant brick-and-mortar presences, all of which are chasing consumers buying goods and services on Apple and Google mobile devices. Department store retailer Macy's is reportedly testing a same-day delivery service with a company called Deliv in Chicago, Los Angeles, San Francisco, San Jose, Houston, Seattle, Washington D.C. and New Jersey. So is organic grocer Whole Foods , which has partnered with grocery delivery startup Instacart . The company delivers items to shoppers' homes in about an hour -- Whole Foods started a rollout of the service in September at select stores in Boston and Austin, Texas.
Starbucks will hold a meeting with analysts and investors at its home base of Seattle in December, when more details on its same-day delivery plans could be unveiled.
2. Evening Stores
Starbucks began to sell small plates, ranging from grilled vegetables to flatbreads, in 2012 in a limitednumber of marketsas part of a push to catch the after-work dinner crowd. It has since started to bring wine and beer into the mix. Now the company is all systems go, intending to launch "several hundred evening stores" shortly.Starbucks will have to update the portion of its Web site explaining the evenings menu.
MoreStarbucks locations that offer evening food options and that are likely to include new menu items could eat into the red-hot success of burrito and salad bowl king Chipotle . Further, by Starbucks serving up plates that are easily shared among a group, it could steal sales from destinations known for appetizers, such as DineEquity's Applebee's and TGI Friday's .
3. Sales in China
Starbucks China, Asia-Pacific segment reported a fourth-quarter same-store sales increase of 5%, down from a 7% gain in the third quarter. One reason for the weaker sales trend -- lower sales of seasonal packaged goods products.
The China, Asia-Pacific segment represented 14.6% of Starbucks' annual sales in fiscal 2014. China's third-quarter GDP increased 7.3%, the slowest in more than five years, according to The Wall Street Journal .
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In the second half of 2015, Starbucks will launch a food and beverage delivery service. Details on the initial test markets and operating structure were scant, with the company saying it's "very early days" and it's working on a "multiple number of solutions" to handle the distribution system.