Starbucks to close 150 U.S. cafes to combat slowing growth

(Reuters) – Starbucks Corp (SBUX.O) on Tuesday said it would close 150 cafes in some saturated U.S. markets and warned comparable sales globally this quarter would miss Wall Street expectations, sending shares down 3 percent after hours.

FILE PHOTO: A Starbucks store is seen inside the Tom Bradley terminal at LAX airport in Los Angeles, California, U.S. on October 27, 2015. REUTERS/Lucy Nicholson/File Photo

The world’s largest coffee chain has faced increasing competition from upscale coffee houses and fast-food chains like McDonald’s Corp (MCD.N) and Dunkin Donuts (DNKN.O) in recent years, missing analysts’ estimates for same-store sales in the U.S.-dominated Americas region in five of the last six quarters.

The company anticipates lower net new store growth in the United States for fiscal 2019 and said it would take steps to address rapidly changing consumer preferences by introducing new beverages, focusing on growing health and wellness trends.

“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.

“At least in the Starbucks heavy markets, the people that are going to drink coffee are already drinking it.”

Starbucks said it expects global comparable store sales to rise 1 percent in the third quarter, below the 3 percent increase estimated by analysts, according to Thomson Reuters I/B/E/S.

Starbucks’ Executive Chairman Howard Schultz stepped away from the company in June surprising investors at time when the company has faced raft of worrying headlines.

Starbucks apologized and closed 8,000 stores in May for anti-bias training after the arrests of two black men in one of its Philadelphia cafes sparked wide-spread protests.

“While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” Starbucks Chief Executive Officer Kevin Johnson said in a statement.

The Seattle-based company said it will close about 150 stores in fiscal 2019 in its most densely penetrated markets, 100 more than its historical average.

Starbucks said it would look to open more stores in under penetrated markets and explore strategic options to license company-operated stores. China is the company’s biggest growth driver with same-store sales rising 4 percent in the last reported quarter.

The company also said it would look to cut general and administrative expenses with plans to partner with an external consultant to speed up the process.

Reporting by Uday Sampath in Bengaluru and Alana Wise in New York; Editing by Shailesh Kuber and Lisa Shumaker

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