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Starbucks pulling the plug on 150 underperforming stores

Starbucks said it's accelerating the rate at which it is closing underperforming company-owned stores in areas that are already packed with them.
Credit: SAUL LOEB
A Starbucks coffee cup is seen inside a Starbucks Coffee shop in Washington, DC, April 17, 2018 (SAUL LOEB/AFP/Getty Images)

For a chain that has so many stores that they often in sight of each other, Starbucks said Tuesday is finally ready to pull the plug on more of its losers.

Starbucks said it will accelerate the rate at which it is closing underperforming company-owned stores in areas that are already packed with them.

The company's announcement on Tuesday was part of a larger plan to ramp up its growth and revenues. The announcement, made at the end of the trading day, jostled investors with Starbucks shares falling about 1.6 percent after hours.

"Our recent performance does not reflect the potential of our exceptional brand and is not acceptable," CEO Kevin Johnson said in a statement. "We must move faster to address the more rapidly changing preferences and needs of our customers.""Our recent performance does not reflect the potential of our exceptional brand and is not acceptable," CEO Kevin Johnson said in a statement. "We must move faster to address the more rapidly changing preferences and needs of our customers."

In previous years, the Seattle-based chain has closed an average of 50 stores a year, but this fiscal year will the demise of about 150 locations. New cafes will continue to open in markets that demand it, the company said, and it is "actively exploring strategic options to license company-operated stores in other appropriate markets."

Starbucks also highlighted a focus on teas, health-and-wellness options and "product innovation around core beverages."

As if to prove the point, the coffee giant launched its latest beverage, the Mango Dragonfruit Refresher, hours before the announcement. The shift to permanent menu items was announced in April, turning away from the previous embrace of limited-time offer drinks, underscored by debut and disappearance of the crazy, hot-pink Unicorn Frappuccino last spring.

According to Andy Sookram, who tracks the company for S&P Global, the issue is that sales at Starbucks locations open at least a year -- an industry measure that takes a chain’s unit growth into account -- aren't as brisk as they historically have been.

"Same-store sales comparisons are slowing. This is their way to try to fix it," he said. "Sometimes, companies feel they need to reinvigorate their strategy."

When Starbucks released its second-quarter earnings in late April, the chain had net revenues of $6 billion, a 13.9 percent increase from $5.29 billion in the same period in fiscal year 2017. Its global comparable store sales increased 2 percent.

Earlier this month, Starbucks raised the price of its brewed coffee 10 cents to 20 cents at the majority of its company-owned stores stateside and company executive chairman Howard Schultz stepped down.

He'd relinquished his CEO title to Johnson in April 2017.

In May, Starbucks revealed it's selling Nestlé the rights to market, sell and distribute its packaged coffee and tea globally for more than $7 billion.

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