Retreating to near four-month lows, shares of Starbucks (SBUX 54.58, -4.92 -8.27%) fall to the sub-$55 level following some underwhelming Q3 results, a comp miss and light guidance from the conference call. Additionally, SBUX announced plans to officially close all 379 Teavana retail stores with the majority closing by Sprint 2018.
Starting with earnings, SBUX reported an in-line $0.55 result while revenues missed at $5.66 billion. Global comparable store sales were up only 4%, underperforming market expectations as a 5% comp increase in the Americas was leveled by a 1% overall increase in China/Asia Pacific. Additionally, Starbucks Rewards membership was up 8% year-over-year with 13.3 million active members.
By geographical region, net revenues for the Americas segment were $4.0 billion in Q3, an increase of 10% over Q3 FY16. Management pointed to momentum beginning with April’s launch of the Unicorn Frappuccino as reasoning for the performance; however, a slowdown into July was caused by lower than expected demand for non-discounted Frappuccino beverages, as well as the somewhat lower than expected sales of other core beverages. The increase was driven by incremental revenues from 1,002 net new store openings over the past 12 months and 5% growth in comparable store sales.
Net revenues for the China/Asia Pacific segment grew 9% compared to last year to $840.6 million in Q3. The increase was primarily driven by incremental revenues from 1,056 net new store openings over the past 12 months and 1% growth in comparable store sales, partially offset by unfavorable foreign currency translation.
Net revenues for the EMEA segment were $249.9 million in Q3, a 9% decline versus a year ago. The decrease was primarily driven by the absence of revenue related to the sale of our Germany retail operations in Q3 FY16 as part of the ongoing shift to more licensed stores in the region, as well as unfavorable foreign currency translation. Partially offsetting these decreases were incremental revenues from the opening of 311 net new licensed stores over the past 12 months.
Looking ahead, SBUX management issued some light guidance for Q4 on the conference call. For Q4, earnings are expected to come in at $0.54-0.55 on comp growth of 3-4%. The company also expects FY revenues to come in at the low end of previous guidance of 8-10%. For the full year, SBUX expects non-GAAP EPS in the range of $2.05-2.06, excluding one to two points of FX.
As first reported on the Q2 call, 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 company concluded that despite efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue. As a result, Starbucks will close all 379 Teavana stores over the coming year, with the majority closing by Spring 2018. The approximately 3,300 partners impacted by these closures will receive opportunities to apply for positions at Starbucks stores, as Starbucks remains on track to create 240,000 new jobs globally and 68,000 in the U.S. during the next five years.
Despite a strong performance through the first three quarters of FY17, the challenging retail and consumer environment cause SBUX to be more cautious into Q4.