Why More Starbucks Store Closures Are on the Horizon

Starbucks Corp. (NASDAQ: SBUX) saw its shares dip on Wednesday after the company announced that it would be undertaking new initiatives to help grow the company in the United States and China. Part of these initiatives would be accelerating its store closures as a result of sluggish sales.

According to the coffee chain, it is “optimizing its U.S. store portfolio,” including shifting new company-operated store growth to underpenetrated markets, slowing licensed store growth and closing stores. On the store closure front, Starbucks said that it is increasing the closure of underperforming company-operated stores in its most densely penetrated markets to roughly 150 in fiscal 2019 from a historical average of up to 50 annually. The firm believes this will result in a slightly lower growth rate in net new company-operated stores.

In the coming fiscal year, the company also expects newer digital initiatives to contribute one to two points of comparable growth in the United States, 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.

Looking ahead, the company now anticipates 1% growth in comparable store sales globally in the fiscal third quarter of this year.

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Kevin Johnson, Starbucks president and CEO, commented:

While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable. We must move faster to address the more rapidly changing preferences and needs of our customers. 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.

Shares of Starbucks were last seen down about 8% at $52.81, with a consensus analyst price target of $63.88 and a 52-week range of $52.58 to $61.94.

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