Starbucks traffic growth stalls

But the company's business in high-growth China continues to flourish.

Starbucks’ same-store sales increased 2% in the U.S. in the quarter ended Dec. 31, the company said on Thursday, as customers bought more expensive drinks but didn’t come into the stores more often.

The Seattle-based company said in its first quarter earnings release that its growth was driven entirely by average ticket, suggesting that traffic in the company’s fiscal first quarter was flat.

The weak traffic helped send the company’s shares down more than 3% in after-hours trading on Thursday.

Starbucks’ stock fell more than 5% in after-hours trading Thursday.

Executives on the company’s earnings call Thursday said they expect “softer” same-store sales in the second quarter. Starbucks said it expects same-store sales during the current fiscal year to be “on the low end” of its 3% to 5% estimate.

They said that sales are particularly problematic in the afternoon. The company continues to generate sales in the morning, when customers are more likely to be members of the loyalty program, and when Starbucks has worked to improve service.

“This is a daypart challenge in the afternoon,” Howard Schultz, the company’s executive chairman, said on the call. “Just as we figured out and cracked the code with the morning daypart, we’ll do the same with the afternoon.”

Yet Starbucks continues to generate growth in China, which it considers a key market for future growth. Same-store sales grew 6% in the fast-growing country, all on transaction growth.

Revenues in the quarter increased 6% to $6.1 billion, the company said. Net earnings were $2.25 billion, or $1.57 per share.

The company said that changes in U.S. tax law contributed 7 cents a share to earnings.

Starbucks recently acquired the remaining 50% interest in a joint venture in East China, giving the company full control over another 1,400 locations in Shanghai and in the Jiangsu and Zhejiang provinces. Starbucks now has more than 3,100 company-operated locations in the country.

It is also the busiest, generating twice as much sales every day as a typical Starbucks does in a week, said Schultz, who predicted that China would one day be the company’s biggest market.

“Today, Starbucks has two powerful, independent but complementary engines driving our global growth, the U.S. and China,” CEO Kevin Johnson said in a statement. “Our work to streamline the company is sharpening our focus on our core operating priorities.”

Starbucks remains one of the most digitally capable restaurant brands in the U.S. Average membership in the Starbucks Rewards loyalty program grew 11% in the quarter to 14.2 million. Its members now represent 37% of U.S. sales, and mobile order and pay is now 11% of U.S. company-operated transactions.

Starbucks opened another 700 net new locations worldwide, bringing its total to 28,039.

Company executives did say on Thursday they expect to have all Teavana locations closed by the end of the month, following the settlement of a lawsuit over the closures by mall operator Simon Property Group. 

They also promised more actions in the future. “Expect us to take additional actions to further streamline the company and unlock value,” Johnson said.

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