Starbucks lowers profit forecast, speeds closures of poorly performing stores

The Starbucks Roastery in Shanghai China

Starbucks shares fell as much as 3% in after-hours trading Tuesday after the coffeehouse chain provided a weak sales forecast for its upcoming quarter and said it would shutter 150 stores in fiscal 2019.

"Our recent performance does not reflect the potential of our exceptional brand and is not acceptable", CEO Johnson said in the statement.

"In this last quarter, we had an unplanned initiative related to the incident in Philadelphia that culminated in closing stores", Johnson said on a call from the Oppenheimer Consumer Conference, according to CNN. Starbucks said it traditionally closes about 50 underperforming locations annually.

The company made the announcement after lowering its guidancefor comparable same-store sales growth in the current quarter to just 1%, well below the 2.9% expected by analysts.

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"It seems fairly clear that the low-hanging fruit on causing everybody to get addicted to their (Starbucks) fantastic products is kind of in the rear-view mirror", said Tony Scherrer, director of research at Smead Capital Management".

Chief financial officer Scott Maw said the company is piling another $5 billion onto its already planned $20 billion budget for stock buybacks and dividends through 2020. At Starbucks, Frappuccino sales were down 3 percent this year through May.

Outgoing Starbucks chairman Howard Schultz acknowledged at the time that the racial bias training closures would cost "tens of millions" but that he saw the closures as an investment in Starbucks employees.

Starbucks also said it will shift new store openings to under penetrated markets and slow licensed store growth. That alliance frees Starbucks to focus on improving its mainstay USA cafe business, where traffic growth had stalled.



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