Starbucks (NASDAQ: SBUX) sank, and continued sinking in after-hours trading, as the company’s earnings report didn’t quite meet analyst’s expectations.
Now, the first things investors always want to look at is whether a disappointing earnings report offers signs of a weakness that will continue to plague a company into the future or if there are any underlying mitigating circumstances.
It turns out that Starbucks offers a bit of both.
There is no denying that the restaurant sector is in a slump. And while that may affect actual restaurants more than coffee shops which offer a few tidbits on the side, Starbucks leadership does acknowledge that the chain was affected.
62 percent of total net revenue in the latest fiscal year for Starbucks comes from the Americas region. Analysts expected sales from cafes in that region which had been open at least 13 months to rise by 3.9 percent. In reality, they only rose by 3 percent.
Same store sales in the United States also increased by 3 percent. However, the number of actual transactions decreased.
Here is where we find out what corporate management believes is the reason for the report numbers and what to expect in the future.
Kevin Johnson, Starbucks Chief Operating Officer, explained that 1,200 cafes got more than 20 percent of their sales from mobile orders during the quarter ending January 1, while less than 600 had done so during the previous quarter. Unfortunately, this resulted in congestion at the drink pick-up sites and that caused some operational challenges.
Howard Schultz, Starbucks CEO, chimed in, saying:
“”This is a great problem to have and a problem that we know how to solve. This is not rocket science.”
The statement looks promising. And, as far as the lower number of transactions, Starbucks said that was actually just a result of their loyalty program switching to reward dollars spent rather than transactions.
So, overall, how badly did Starbucks miss the mark?
Analysts expected revenue to hit $5.8 billion, from $5.4 billion the year before. Starbucks got $5.7 billion. In reality, the 52 cents earnings per share that Starbucks delivered met expectations.