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Why Starbucks’s Fiscal 1Q18 Revenues Missed Analysts’ Estimates

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Jan. 31 2018, Updated 1:04 a.m. ET

Fiscal 1Q18 revenues

Starbucks (SBUX) posted revenues of ~$6.1 billion in fiscal 1Q18, which represents 5.9% growth from ~$5.7 billion in fiscal 1Q17. However, the company’s fiscal 1Q18 revenues missed the analysts’ estimate of ~$6.2 billion. The lower-than-expected fiscal 1Q18 revenues were due to weak sales of holiday beverages, merchandise, and gift cards.

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Revenue growth by segment

Starbucks’s fiscal 1Q18 revenue growth was driven by the addition of new restaurants and positive SSSG (same-store sales growth). The revenue growth across its segments follows:

Americas: In fiscal 1Q18, the Americas segment posted revenues of ~$4.3 billion, which represents growth of 6.9% from ~$4.0 billion in fiscal 1Q17. This revenue growth was driven by the addition of 979 restaurants and positive SSSG of 2.0%.

CAP (China/Asia-Pacific): The CAP segment posted revenues of $843.7 million, which represents growth of 9.5% from $770.8 million. This revenue growth was driven by the addition of 1,767 company-owned restaurants and a systemwide SSSG (same-store sales growth) of 1.0%.

However, some of this revenue growth was offset by a decline in the unit count of franchised restaurants by 734 units.

Channel Development: In fiscal 1Q18, the Channel Development segment posted revenues of $560.3 million, which represents growth of 1.2% from $553.7 million in fiscal 1Q17. This revenue growth was driven by growth in its Foodservice, International, and Packaged Coffee channels.

However, some of this revenue growth was offset by competitive pricing on single-serve items and the sale of its Tazo tea brand to Unilever in November 2017 for $384.0 million.

EMEA (Europe, the Middle East, and Africa): The EMEA segment posted revenues of $283.9 million in fiscal 1Q18, which represents growth of 8.2% from $262.4 million. This revenue growth was driven by foreign currency translation and the addition of 362 franchised restaurants.

However, some of this revenue growth was offset by a 1.0% fall in SSSG and a decline in the unit count of company-owned restaurants by two units.

Others: Starbucks’s Others segment posted revenues of $120.0 million, which represents a fall of 22.4% from $154.6 million in fiscal 1Q17. This segment includes Teavana-branded stores, Seattle’s Best Coffee, and Starbucks Reserve and Roastery businesses. This decline was due to the closure of Teavana retail stores.

Peer comparisons

During the same period, Dunkin’ Brands (DNKN) and Domino’s Pizza (DPZ) are expected to post revenue growth of 2.2% and 10.7%, respectively, while McDonald’s (MCD) revenues are expected to fall 13.3%.

Next, we’ll look at Starbucks’s fiscal 1Q18 SSSG.

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