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Starbucks' 2018 may not be as bitter as some fear - analysts

Vibhuti Sharma, Siddharth Cavale, Reuters Jan 29 2018, 0:02 IST

Starbucks Corp shares fell 5% on last week after the company reported weak holiday-quarter sales, indicating near-term troubles were far from over, but analysts said the brand's strength and a growing Chinese fanbase would help it ride out the rough patch.

Over the past year, the world's largest coffee chain has hit a few bumps as it tries to boost sales - the rollout of mobile ordering that was supposed to attract more customers is still facing issues and it struggles to fill stores in the afternoons and evenings.

On top of that, weak limited-time offers and holiday-themed coffees did not resonate with customers, hurting sales during its biggest sales quarter.

"Subpar 1st quarter top-line results, but we ask if this is a 'broken story' or just a great brand with huge moats and large growth opportunities rolling through a rough patch," Morgan Stanley analyst John Glass said in a note.

"We'd argue the latter, but acknowledge a year into the comp deceleration, its show-me time," said Glass, and added that "Starbucks is the retailer with the highest customer frequency of any category we can think of."

Some analysts said the company had made inroads solving its problems.

Starbucks has been adding working hours at some US stores and is focusing on workflow, adding one or two more baristas to service orders during peak hours. It is also testing sending text messages to customers when their orders are ready.

The company is also doubling down in the Chinese market - where the cafe culture is taking off - to offset stagnant sales in the United States. China same-store sales were up 6 percent and Starbucks said it is planning to more than triple its over 3,000-store network in the country within a decade.

It recently opened a massive, showcase Reserve Roastery in Shanghai.

"Our U.S. Starbucks stores, on average, do about $32,000 a week. The Roastery in Shanghai after 8 weeks of operations is doing, on average, twice that, not each week but each day," Howard Schultz, the company's executive chairman said on a conference call on Thursday.

Schultz stepped down as chief executive last year to focus on Starbucks' premium business and the pressure is mounting on his successor Kevin Johnson to boost growth.

Sales at established Americas region cafes in the quarter to December 31 were up just 2%, falling short of Street estimates of a 3.3% rise.

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