Starbucks’ sales have not suffered over the outcry that ensued when two black men were arrested at a Philadelphia store, CEO Kevin Johnson said Thursday, but he vowed to remain committed to ensuring such an incident never happens again.
The coffee chain reported second-quarter sales growth that modestly exceeded Wall Street expectations during a period that preceded the controversy.
Since the episode two weeks ago, Johnson said the company has not been “seeing an impact on comp sales,” referring to sales at established stores in the United States. He said Starbucks is “still assessing the overall financial impact of the actions we are taking” to address the issue, including a plan to close 8,000 U.S. stores on May 29 to conduct racial bias-awareness training for its employees.
Starbucks’ leadership team remains in Philadelphia to address the situation, Johnson said. He also called the May 29 closings only a “small piece ongoing actions that will systematically be woven into our processes, training, and culture.”
“I personally committed to act on several fronts to ensure it never happens again,” Johnson said.
During the quarter that ended April 1, the company said sales grew 2 percent at established stores worldwide, compared to the 1.8 percent growth analysts expected, according to FactSet. Its stock fell 2.3 percent to $58.01 in after-hours trading.
Starbucks’ earnings report gave no indication that it expected any long-term financial impact from the Philadelphia controversy. Starbucks kept its forecast for full-year earnings of between $2.48 per share and $2.53 per share.
The Philadelphia episode began when a Starbucks manager called police on April 12 to complain that the two men were refusing to buy anything or leave the store. The two, Rashon Nelson and Donte Robinson, told The Associated Press that they were waiting for a business contact to arrive. The businessman, Andrew Yaffe, showed up as they were being handcuffed and could be seen in a video demanding an explanation.
The video that was widely shared on social media prompted calls for a boycott, a blow to the progressive and inclusive image that Starbucks has projected. Starbucks has also long cast its stores as welcoming meeting places for friends and associates outside the home and workplace.
Johnson moved swiftly to get ahead of the outcry. He denounced the arrest and traveled to Philadelphia to meet with the two men. In addition to the May 29 event, the company has promised to incorporate unconscious bias training into the instruction process for all newly hired employees.
In terms of operations, Starbucks has been trying to accelerate sales growth in the U.S. The coffee shop chain has been tinkering with its food offerings in an effort to increase sales at lunchtime, and has focused on streamlining its business, like the recent sale of its Tazo tea brand. It also recently opened its Mobile Order and Pay service to anyone using the Starbucks app, a service previously available only to Starbucks Rewards customers.
Sales grew 2 percent in the Americas but that was due to customers spending more with each transaction, not an increase in store traffic. Sales grew 6 percent in China, its fastest growing market, but customer traffic was also stagnant in the overall Asian market.
COO Roz Brewer said the expansion of its mobile order and pay service was key part of a marketing shift designed to attract non-rewards customers. She said those customers account for 50 percent of the afternoon sales that Starbucks is trying to boost.
The Seattle-based company reported profits that met Wall Street expectations. Net income was $660.1 million during the quarter, or 47 cents per share. Adjusted for one-time gains and costs, earnings came to 53 cents per share, which was the same as expectations, according to Zacks Investment Research.
Starbucks posted revenue of $6.03 billion in the period, exceeding Street forecasts. Ten analysts surveyed by Zacks expected $5.9 billion.