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Starbucks Falls on Decaffeinated Expectations

Starbucks lowered its earnings expectations on Thursday.

This development wasn’t entirely unexpected. Starbucks has been growing so fast for so long, that some analysts had been anticipating that it would eventually decelerate. The company is investing heavily in its stores, to create a more seamless digital-ordering experience and to build out a higher-end brand of “Reserve” stores where coffee will sell for as much as $10 a cup. Those investments could pay off down the road, but for now they appear to be holding the company’s earnings back in the near term. Its operating margins fell 3.6 percentage points for the year due to Starbucks’ heavy investments in its stores.

For its full fiscal year, Starbucks sales at stores that have been open for at least 13 months grew 3%, down from 5% in 2016. And all of that growth came from higher “ticket”, the amount people are spending at Starbucks, as opposed to more transactions. Unless it plans to raise prices, Starbucks will need to find a way to bring in more customers to boost its results in the future.

Big Picture: Starbucks shares fell hard after it released disappointing earnings guidance.


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