Slowing Membership Growth Leads to Drop in Starbucks Shares

0
66

Shares of Starbucks Corp fell over 7 percent on Friday as the growth of its membership in the United States slowed down. This slowing down of membership growth has triggered concerns over the U.S coffee franchise’s capacity to fulfill its long-term targets. Starbucks Corp reported profit on Thursday under the leadership of Kevin Johnson, the new CEO that was complying with the expectations of Wall Street for the first quarter. But the company cut down its earnings forecast for current-quarter. The company also announced that it would close down all its stores in Teavana.

Starbucks’ business in the U.S. is already suffering from increased competition from meal kit vendors and daily convenience stores. There has been a very slow growth in membership of the company because of the changes it made in the loyalty rewards plan last year. A Credit Suisse analyst in their report mentioned the fear of store sales in the U.S. unlikely to continue their mid-single digit range due to continued slowing down of loyalty membership growth.

Last year Starbucks Corp changed its long standing reward program to award point for each dollar spent at its stores, a shift from its previous practice of awarding points for each purchase. This shift has put consumers at a disadvantage who prefer to buy cheaper items.

Analysts at Wedbush Securities now feel that Starbucks’ long-term forecast for growth of revenue in double digit, growth in mid-single digit of universal comparable sales, and 15-20 percent increase in earnings may not be a practical target any longer.

Company’s share price was lowered down to US$56 from the average price of US$66 by seven analysts for their 12 month target. The company’s share were down by 7.6 percent and stood at US$54.95 in early trading while on course to shed market value of about US$7 billion.

Leave a Reply