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Starbucks CEO Calls Brand’s Recent Performance Not Acceptable

Starbucks is hoping its latest initiatives will spark a turnaround after seeing its shares fall 3 percent this week in relation to slowing U.S.  sales and its decision to shutter 150 locations in 2019. Last year, the chain reduced its long-term sales and profit targets and in April reported that U.S. traffic was flat. CEO Kevin Johnson said, this week, however, that he expects same-store sales to be up 1 percent by the end of this quarter.

“Our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” he said in a company announcement. “We must move faster to address the more rapidly changing preferences and needs of our customers.”

Those faster moves include three operational initiatives in an effort to “regain revenue and earnings momentum.” They include:

  • Accelerating growth in the U.S. and China, the company’s targeted long-term growth markets.
  • Expanding and leveraging the global reach of the brand through the Global Coffee Alliance.
  • Sharpening the focus on increasing shareholder returns.

“Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers which serve as the foundation to re-accelerate growth and create long-term shareholder value,” Johnson said.


Accelerating growth in the U.S. and China

The company’s streamlining initiatives will allow greater agility in adapting more quickly to changes in consumer preferences, Johnson said. This includes accelerating product innovation around core beverages while leveraging the growing tea and refreshment category, as well as consumer behavior trends towards health and wellness.

The chain is also expanding the breadth and depth of digital relationships with current and new customers. The company has added 5 million digitally registered customers since April 2018 and 2 million active Starbucks Rewards members year-over-year to 15 million, up 13 percent from the previous year, according to the release.

In FY19, the company said it expects newer digital initiatives to contribute one to two points of comp growth in the U.S., supported by a redesigned Starbucks Rewards program that provides customers more choice around redemptions and payment, as well as expanded personalization capabilities for customers that have a digital relationship with the company.

Expanding and leveraging the global reach of the brand

Starbucks continues to make progress toward closure of the Global Coffee Alliance transaction with Nestlé to accelerate and grow the global reach of Starbucks brands in consumer packaged goods foodservice, adding opportunity for another 5 million points of presence in 189 countries.

Sharpening focus on profitability and increasing shareholder returns

With the execution of the company’s strategic priorities expected to improve the return profile of the business, the company now expects to return approximately $25 billion in cash to shareholders in the form of share buybacks and dividends through FY20. This represents a $10 billion increase from the cash return target announced on November 2, 2017, according to the company.

Starbucks said it is more focused than ever on improving G&A efficiency with plans to partner with an external consultant to drive speed and leverage best practices. It’s also exploring strategic options to license company-operated stores in other appropriate markets.

Lastly, in a support of an accelerated return of cash to shareholders, the board of directors approved a 20-percent increase in the company’s regular quarterly dividend and declared a cash dividend of $0.36 per share.


Financial update

The company now anticipates 1 percent growth in comparable store sales globally in Q3 FY18.

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