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What's wrong with Starbucks?

Starbucks customers may be growing tired of chestnut praline chai tea, peppermint mochas and gingerbread lattes....

Posted: Jan 26, 2018 8:47 PM
Updated: Jan 26, 2018 8:47 PM

Starbucks customers may be growing tired of chestnut praline chai tea, peppermint mochas and gingerbread lattes.

Shares of Starbucks fell nearly 6% on Friday after sales missed Wall Street's forecasts. Earnings did top estimates, but that didn't impress investors.

What's more, sales at stores open at least a year rose just 2% in the United States, also below analysts' expectations.

One of the reasons for the disappointing numbers: Sales of Starbucks' limited-time holiday offerings were lackluster, CEO Kevin Johnson told analysts during a conference call Thursday.

Holiday beverages, gift cards and other merchandise "did not resonate with our customers as planned," Johnson said. It will be interesting to see whether Starbucks pulls back on the gimmicky drinks next year or just rolls out new ones.

Another problem: Starbucks doesn't seem to be attracting new customers. All its same-store sales growth in the United States came from customers spending more. But the number of actual transactions was flat.

The slow death of shopping malls is hurting Starbucks, too. Only 6% of Starbucks stores are in a mall, but sales at those stores fell during the quarter.

So investors have reason to be concerned. Johnson took over as CEO for the legendary Howard Schultz last April. And Starbucks stock has barely budged since then. (A flat white may be a good thing for Starbucks. A flat stock price isn't.)

Related: Why Wall Street runs on Dunkin' instead of Starbucks

Meanwhile, the S&P 500 is up more than 20%, while Starbucks' rival Dunkin' Brands has gained nearly 25% and the resurgent McDonald's has soared 35%.

The good news for Starbucks is that China continues to be a bright spot.

Sales in China surged more than 30% in the fourth quarter and same-store sales rose 6%. Johnson said during the analyst call that the new high-end Starbucks Roastery in Shanghai is now "the highest-grossing Starbucks store in the world."

Some analysts think investors should be giving Starbucks more credit for its strength in China, South Korea and other international markets and worry less about the slowdown in America.

"Momentum continues despite recent hiccups, and we think huge upside potential remains for Starbucks globally," Wells Fargo Securities analyst Bonnie Herzog wrote in a report Thursday.

But many investors clearly seem nervous about the trouble Starbucks is having in its home market.

Instinet's Mark Kalinowski said Friday that Wall Street "will be focused -- and rightly so" on the sluggish U.S. growth. He added he's keeping his "buy" rating on Starbucks for now, but "we hold our noses at yet another bitter quarterly same-store sales brew."

Related: Schultz says he's 'emotionally prepared' to let go at Starbucks

There's much to like about Starbucks' domestic strategy. The company has embraced technology in the past few years and is expected to keep it up now that Johnson, the former CEO of Juniper Networks and a veteran of Microsoft and IBM, is in charge.

Digital sales have grown rapidly thanks to the Starbucks mobile app. Johnson said it's so popular the company is considering trying some "cashless stores" in the United States.

Schultz also hinted that Starbucks "is in a unique position to take advantage" of the rise of blockchain technology and cryptocurrencies as a legitimate form of payment.

But GlobalRetail managing director Neil Saunders said in a report Thursday that Starbucks should be doing even more to embrace traditional technology, particularly in stores.

Related: Can Kevin Johnson escape the shadow of Howard Schultz?

People still have to wait a long time to order and get their drinks. Some have suggested that kiosks in stores could help.

"During peak times, some shops are busy, and service is painfully slow," Saunders wrote. "Although Starbucks uses technology well, we think it needs to look again at how it can use digital solutions ordering in store to cut wait times."

Of course, having too many people waiting in line is a better problem than empty stores.

So it's probably too early for investors to be worried about whether Starbucks is losing stream under Johnson and new chief operating officer Rosalind Brewer, formerly the head of Walmart's Sam's Club.

But investors are growing impatient with the new management team and want better results from U.S. stores.

Schultz has already made one comeback -- he stepped down as CEO in 2000 and returned in 2008. If things don't turn around, investors might start clamoring for another encore.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 764448

Reported Deaths: 13965
CountyCasesDeaths
Marion1049701803
Lake567981029
Allen42685698
St. Joseph37253568
Hamilton37131426
Elkhart29699470
Tippecanoe23347230
Vanderburgh23106404
Porter19538327
Johnson18755391
Hendricks18012321
Madison13463345
Clark13450198
Vigo12789255
LaPorte12533224
Monroe12494178
Delaware11100198
Howard10612237
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Hancock8707149
Bartholomew8235157
Warrick8031157
Floyd7975181
Grant7337181
Wayne7222201
Boone7145105
Morgan6886142
Marshall6323116
Dubois6267118
Cass6083111
Dearborn598578
Noble595790
Henry5939111
Jackson514677
Shelby509097
Lawrence4901127
Gibson460696
Montgomery454492
Clinton453555
DeKalb451585
Harrison450576
Whitley414745
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Steuben409560
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Ohio58211
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Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1120922

Reported Deaths: 20467
CountyCasesDeaths
Franklin1300711493
Cuyahoga1169882259
Hamilton822191259
Montgomery533351059
Summit487911014
Lucas43688832
Butler39879614
Stark33752937
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Warren24850312
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Delaware19088138
Licking16820227
Trumbull16744491
Fairfield16735207
Medina15800276
Greene15468254
Clark14325308
Portage13391218
Wood13327201
Allen12026245
Richland11707213
Miami10976228
Wayne9238227
Columbiana9182236
Muskingum9114137
Pickaway8729123
Tuscarawas8706254
Marion8691140
Erie8109166
Ashtabula7264179
Hancock7039134
Ross7004165
Geauga6939153
Scioto6636108
Belmont6203179
Lawrence5905104
Union590049
Jefferson5718162
Huron5622122
Sandusky5467130
Darke5436130
Seneca5373128
Washington5352111
Athens526260
Auglaize506787
Mercer490285
Shelby480497
Knox4603112
Madison446966
Ashland441898
Defiance438099
Fulton435275
Putnam4349104
Crawford4103111
Brown408862
Preble3940107
Logan391479
Clinton387966
Ottawa374981
Highland364668
Williams355478
Champaign347560
Guernsey329554
Jackson321154
Perry298050
Morrow294543
Fayette287950
Hardin278865
Henry276967
Holmes2725102
Coshocton272461
Van Wert251465
Gallia248450
Adams247758
Pike244537
Wyandot235257
Hocking221763
Carroll200349
Paulding179342
Meigs150740
Noble137639
Monroe137445
Harrison115038
Morgan111524
Vinton87117
Unassigned03
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