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Sep 4, 2019

Starbucks shares slide as outlook signals slower profit growth

Starbucks to limit app options after crazy drink orders

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Starbucks Corp. (SBUX:UN) slumped the most intraday in more than seven months after the coffee chain signaled that its profit growth will start to slow.

The company spooked investors with a presentation that indicated its recent rate of 10 per cent or more profit expansion isn’t sustainable. Starbucks said the effect of a tax benefit in 2019 will end in its next fiscal year, which starts in October, and the company will also reduce share buybacks. The stock slid as much as 3.5 per cent to US$93.40 in New York trading.

Starbucks has made some changes in recent years to revitalize growth, including shuttering locations in U.S. markets that were densely populated with cafes and instead focusing on suburban markets and expansion in China. In July, the company posted its best quarterly sales growth in three years, boosted by gains in customer traffic and higher prices. It also increased its profit forecast, buoying investors a year after uninspiring results had them questioning the company.

The company’s shares had gained more than 50 per cent this year through the close of trading on Tuesday. But that surge may have brought higher expectations from Wall Street.

The company faces steep competition in the U.S., where more premium coffee options have resonated with customers. Its plans in China could be hampered by geopolitical tension and local operators with ambitious expansion plans.