Shares of Starbucks (NASDAQ:SBUX) were down more than 9% through morning trading hours Wednesday after the coffee retailer issued sluggish comps guidance and said it would close more than 150 U.S. stores in fiscal 2019.
Kevin Johnson, Starbucks president and CEO, revealed the store closure details during an Oppenheimer conference on Tuesday. Starbucks has historically closed about 50 stores per year on average, so its new plan marks a significant uptick from the norm.
The affected stores are located primarily in urban areas that are already densely populated with other Starbucks locations.
The ramped-up closures are one piece of a larger shift for Starbucks stores, with the company focusing on underpenetrated markets, slowing licensed store growth, doubling down on its Roastery and Reserve concepts, and investing more in U.S. digital efforts.
Starbucks will also look to expand its international influence through the Global Coffee Alliance, a partnership with Nestle (OTC:NSRGY) .
While some might view these initiatives as a necessary trimming of the fat, investors have not reacted positively to the news so far today. After closing at $57.43 per share on Tuesday, Starbucks opened in the red and eventually sunk to an intraday low of $51.87, down about 9.7%, in morning trading.
Today’s selling is likely coming on the back of Starbucks also mentioning that it now sees comps growth at just 1% for the third quarter of fiscal 2018.
Johnson brought up the company’s decision to close thousands of stores for one day to host racial bias training for its employees while discussing this comps guidance, although he did say the event was “not an excuse.”
Still, sluggish near-term guidance clearly has plenty of investors worried today—despite management’s efforts to assure shareholder value.
In a press release, Starbucks said it was raising its target for cash returned to shareholders to $25 billion through fiscal 2020, including a 20% increase in its regularly scheduled quarterly dividend. The company also said that new digital initiatives will contribute approximately 1% to 2% attributable comps in 2019.
It will be interesting to see what this guidance does to analyst sentiment for the coffee behemoth’s fiscal 2019, which has not been very positive recently. Starbucks has seen eight downward revisions to its 2019 earnings estimates within the past 60 days, compared to just one upward revision in that time.
The Zacks Consensus Estimate for SBUX’s 2019 earnings has slumped about three cents thanks to this revision activity. Prior to the release of its new guidance, analysts were expecting Starbucks to see EPS growth about 11% from its projected 2018 totals.
Mixed revision activity for the remainder of 2018 has kept SBUX at a Zacks Rank #3 (Hold), but its analyst outlook is likely to see some adjustments soon.
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