SEATTLE - Starbucks Corp. shares sank nearly 10% last week, a day after the coffee retailer said it was retooling some store operations to improve service in the wake of slower sales growth in July, reported the Associated Press.
July sales grew at the slowest pace in nearly five years, and executives blamed unexpectedly high demand for Frappuccinos and other frozen blended beverages in the peak morning hours of what has been a hot summer for much of the nation. Normally, Starbucks' baristas crank out more hot espresso drinks, at a quicker pace.
"While this is an issue, and we're working on it, and we're going to get it solved, it perhaps doesn't quite deserve the focus it's been getting" from analysts, CFO Michael Casey said during a conference call in which executives sought to emphasize their profits and expansion over the sales issue.
CEO Jim Donald said the company was working to solve the problem by having more baristas work the morning peak hours, among other possible changes, including reducing the time it takes to blend cold drinks.
But investors sent Starbucks shares down $3.27 to $30.03 in midday trading Thursday on the Nasdaq Stock Market, erasing almost all their gains since the start of the year. Despite the operations issues, Seattle-based Starbucks said profits rose 16%. For the 13 weeks ended July 2, Starbucks had net income of $145.5 million, or 18 cents per share, up from $125.5 million, or 16 cents a share, in the same period a year earlier. Revenue for the latest quarter increased to $1.96 billion, up from $1.6 billion last year.
Casey said the company saw signs of the cold-drink service slowdown as early as April. "But quite honestly, we didn't recognize it because we didn't look hard enough until we basically got into July and started to do the analysis. Had we known I think we could've done better training and better deployment to have avoided it.... We wish we had the benefit of hindsight.
Rather than comparable-store sales, Starbucks Chairman Howard Schultz urged analysts to focus on the earnings increase, its plans to expand into Brazil later this calendar year, India and Russia next year, and boost new-store openings to 2,000 worldwide in fiscal 2006up from 1,800 as previously forecastand 2,400 in fiscal 2007. As of July 30, Starbucks had 11,946 stores in 37 countries. It opened 559 stores in the latest quarter, 395 of them in the United States and 164 internationally.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.