Starbucks, the coffee chain behemoth, has reported a 6% rise in third-quarter global same store sales but cut its outlook for the current quarter because of a recent slowdown in US customer traffic and the continuing economic uncertainty in Europe.
The group performance in the quarter was driven by a 12% rise in same store sales in China and Asia and a 7% increase in the Americas. This offset its performance in Europe were sales were flat.
Operating income in Europe stood at $2.6m was down from $4.9m last year. And margin of 0.9%, declined 100 basis points from last year’s Q3, due largely to transition costs related to the new distribution model the group began rolling out in the UK earlier this fiscal year. It said that is transition was now nearly complete.
“We have great confidence that we are going to be able to turn Europe around,” said chief executive Howard Schultz.
Troy Alstead, chief financial officer, said: “Europe has been a challenge for us all year and continues to be.
However, Alstead said that the third quarter results were the beginning of “stabilisation in that region even in the face of difficult conditions”, although he didn’t rule out closing further sites across the region.
He said: “We’re starting to see the benefit of the consumer initiatives we put in place.” This includes renovating 70 stores in London, which Alstead said were ready to “show our products to the world during the Olympics”.
Alstead said: “While we don’t yet have a final determination of numbers of stores to close, I anticipate any potential charges in Q4 related to the store closures and to the many other initiatives in place to transform EMEA will be less than $20m with perhaps up to an additional $10m during the first half of 2013.
“As in the US several years ago, targeted closures of unprofitable stores and the resulting stronger portfolio will enhance our ability to deliver more consistent earnings growth in the EMEA.”
The group said that is total net revenues for the quarter increased by 13% to $3.3bn, while operating income climbed 22% to $492m.
In Q3, Starbucks opened 231 net new stores around the world including its 600th store in mainland China and its first sites in Costa Rica and Finland. With these opening startups it said it was well on the way to opening the 1,000 net new stores the chain committed to opening in 2012.
It plans to open an additional 1,200 net new stores in fiscal 2013, primarily in the US and China and Asia/Pacific regions.
Schultz said: “Despite coming in short of our expectations I am pleased with the increasing operating leverage we are seeing, the fact that this was our 11th consecutive quarter of record results and the fact that we achieved the results in the face of high legacy commodity costs and challenging economic and consumer headwinds in key markets. I am confident that we are operating with the discipline, flexibility and customer centricity necessary to enable us to continue driving EPS growth in excess of revenue growth over the long run.”
Alstead said: “While still representing earnings growth of approximately 20% over last year's fourth quarter, we have lowered our expectations for Q4 FY12 earnings per share to $0.44 to $0.45 to reflect the difficult economic environment all global retailers are confronting today. Nonetheless, we remain confident in the underlying strength of our business, in the strategies we have in place for driving sustained, profitable growth, and in our ability to again drive earnings growth in the range of 15% - 20% in fiscal 2013.”
