Coffee giant posts mixed earnings, plans to shutter tea division

Brands just can’t escape a challenging retail environment — a main reason Starbucks is pulling the plug on its Teavana operation.



Just hours after the coffee giant announced it would buy out the remaining 50% share of its East China business from its joint venture partners for about $1.3 billion — its biggest acquisition, ever — Starbucks is cutting loose its Teavana division.



Blaming soft retail and hospitality environments, many of the company’s principally mall-based Teavana retail stores have been persistently underperforming. Following a strategic review of the Teavana store business, the coffee giant will close all 379 Teavana stores over the coming year. A majority will close by spring 2018, according to Starbucks.



Lower mall traffic also impacted Starbucks’ overall performance in the third quarter, ended July 2. Net income slipped to $691.6 million, or 47 cents per share, for the quarter, down from $754.1 million, or 51 cents per share, a year ago.



Net revenues grew 8% to a Q3 record $5.7 billion. This was a 9% increase after excluding $53.7 million of unfavorable foreign currency translation. This met Wall Street's estimates for revenue of $5.76 billion, according to The Street.



Global comparable store sales increased 4%, and Americas comp store sales increased 5%. U.S. comp store sales increased 5%, driven by a 5% increase in average ticket. This increase was credited to the shift in the Starbucks Rewards loyalty program from a frequency-based to the amount spent. This change took place in the third quarter of the fiscal year 2016.



Meanwhile, comp store sales in China jumped 7%. This was driven by a 5% increase in transactions.



“Starbucks leveraged food and beverage innovation, an elevated in-store experience and personalized digital connections to our customers to deliver another quarter of record financial and operating performance, despite the softness impacting our principal sectors overall,” said Kevin Johnson, Starbucks president and CEO. “Continued focus on execution against our strategic priorities enabled us to gain share and positions us well for the future.”



Looking ahead, Starbucks did temper its expectations going into the fourth quarter. “Despite posting record performance in Q3 and further extending our lead compared to the industry overall, the combination of trends in the quarter and ongoing macro pressures impacting the retail and restaurant sectors has us a bit more cautious going into Q4,” said Scott Maw, Starbucks CFO.