Teavana stores to close as Starbucks focuses on China

Focusing on its core coffee-shop business, Starbucks on Thursday said it will close its Teavana stores, even as it takes full ownership of all Starbucks stores in China in that rapidly expanding market.
The company is closing all 379 Teavana retail stores, saying that they’re struggling and would likely continue doing so. Many of those stores are located in malls, where traffic has been declining.


The stores will close over the coming year, with most closing by spring 2018. The 3,300 employees affected can apply for positions at Starbucks stores.

The company will continue to sell Teavana drinks in its Starbucks stores as well as bottled Teavana beverages in grocery stores.

The moves came as Starbucks announced third-quarter earnings results that fell below Wall Street expectations for revenue and comparable sales growth. It met Wall Street expectations for earnings.

Earlier Thursday, the company said it is spending $1.3 billion to purchase the remaining 50 percent of its joint venture business in China — the single largest acquisition in company history.

The move means Starbucks will assume 100 percent ownership of about 1,300 stores in east China — spanning Shanghai and Jiangsu and Zhejiang Provinces — in the country that represents the company’s fastest-growing market, in terms of store count, outside of the U.S., the company said.

As Starbucks pushes into China, CEO says market will eclipse U.S.
Starbucks currently has 2,800 stores in China. Aside from the 1,300 stores in east China, the remaining 1,500 are already fully company-owned. Future stores opening in the country will be as well, the company said. Starbucks plans to be operating 5,000 stores in China by 2021.

Starbucks’ sales in China have been growing rapidly. In recent quarters, sales in stores there open at least a year grew 6 to 7 percent, versus 3 percent in the U.S.

“Starbucks’ growth potential in China is unparalleled,” Kevin Johnson, CEO and president, said during a phone interview Thursday. He cited the market’s ability to sustain a large number of stores, long-term growth potential, return on invested capital and confidence in management team there.

Starbucks will be acquiring the 50 percent interest from joint venture partners President Chain Store Corporation and Uni-President Enterprises Corporation.

At the same time, those joint venture partners will be acquiring Starbucks’ 50 percent interest in its Taiwan business, assuming 100 percent ownership of Starbucks’ operations there. That means the 410 Starbucks stores in Taiwan will be fully licensed, rather than joint ventures.

The move is similar to the company’s 2011 decision to fully license its Hong Kong and Macau operations, Johnson said in a statement.

Both transactions are expected to close by early 2018.

Sales growth in China, as well as the U.S., helped account for an 8 percent rise in revenue in the third quarter, compared to the same quarter last year.

Same-store sales — sales at stores open at least a year — showed heartening growth as well, especially compared to the previous two quarters. In the U.S., such sales increased 5 percent, driven largely by an increase in how much an average customer spends. That’s compared to 3 percent growth the past two quarters.

Johnson attributed part of the growth to innovations in food and beverage offerings, such as sous vide egg bites and more lunchtime offerings.

The company has been focusing on lunchtime as an opportunity to sell more food. It has been testing a “Mercato” menu, featuring grab-and-go salads and sandwiches made fresh daily, at its Chicago stores. It will roll out the Mercato menu in the greater Seattle area in early August, Johnson said.

Same-store sales in China grew 7 percent, about the same as the previous two quarters.

Globally, same-store sales grew 4 percent, which came in below analysts’ consensus estimate of 4.8 percent growth, according to Consensus Metrix. Such sales also came in below analysts’ expectations for the Americas region (5 percent growth versus analysts’ expectations of 5.2 percent) and China and Asia Pacific region (1 percent growth versus 4.3 percent expected).

The company continued its digital growth, with Rewards membership up 8 percent year-over-year to 13.3 million active members. Sales to such members represented 36 percent of sales at U.S. company-operated stores.

Sales via mobile order-and-pay increased to 9 percent of transactions at U.S. company-operated stores. The company plans to allow non-Rewards customers to use mobile order-and-pay starting next year, Johnson said. He added that the company has made changes in its stores to help ease the congestion created by people waiting to pick up their mobile orders.

Overall, the company logged $5.66 billion for the quarter ended July 2. That’s up 8 percent from a year ago but still fell short of Wall Street analysts’ expectations of $5.75 billion, according to a Reuters consensus estimate.

Earnings per share were 47 cents, which included an impairment charge largely related to the closure of the Teavana stores. Without that item, earnings per share were 55 cents, which met Wall Street expectations.