Shares were down 4.24% to $55.98 in early-morning trading on Friday after the company posted soft first-quarter revenue and comparable-store sales increased by less than analysts had expected. Starbucks also cut its full-year revenue forecast.
The Seattle-based company appears to be having trouble dealing with the quick rise of mobile order and pay, which was a factor impacting sales and traffic.
U.S. comparable-store sales increased 3%, which fell short of Wall Street's expectations for 4% growth. Domestic same-store sales were made up of a 5% jump in average ticket and a 2% decline in transactions.
On the earnings conference call, executives cited customer congestion in some stores related to an uptick in usage of the technology. The increase created operational challenges, especially at its highest volume stores at peak traffic hours.
"If you look at stores that had more than 20% of their transaction volume coming from mobile order and pay at peak, this quarter we had 1,200 stores in the U.S. that fit that profile. Last quarter, it was 600 stores, so it's doubled in this last quarter," COO Kevin Johnson said on the call.
The congestion at the beverage pick-up counter resulted in some customers who entered stores or considered visiting a location, but decided not to complete a transaction, executives noted.
The company is taking action to deal with this issue at the highest mobile and order pay stores, such as adding new roles and testing new digital tools such as text message notifications when a mobile order is ready for pickup.
Mobile pre-orders are now 7% of total domestic transactions and the bottleneck at the pickup counter is part of the U.S. sales issue, Credit Suisse analysts noted. Management also alluded to the broader structural decline in retail traffic. But neither of these sales drags were quantified.
"This result reinforced our concerns that sales and margin guidance will be challenging to achieve in the near-term. We have also been hesitant to recommend the stock until we see more signs of stabilization in the same-store sales trajectory, which has yet to occur," the analysts added.
Nomura analyst Mark Kalinowski attributed the Americas comparable-store sales miss to a difficult year-over-year comparison, as comps were up by 9% a year ago. Additionally, the retail food-service environment worsened as 2016 progressed, with December the worst month for 2016 restaurant industry same-store sales.
"The good news is the comparisons Starbucks will lap get less challenging over the next three to six months," Kalinowski said in a note.
He recommended using expected weakness in the stock today to add to long positions and reiterated Starbucks as the firm's top calendar 2017 restaurant-stock pick.
"While Starbucks remains a dominant global growth story in both retail and ultimately consumer products, the near-term focus remains the U.S. retail comp. And not unlike broader retail, Starbucks comps continue to decelerate," Barclays analyst Jeffrey Bernstein said in a note.
But Bernstein noted that comparable-store sales are expected to re-accelerate in the second half of the year, with help from easing comparisons and an acceleration of new products and initiatives.