During Starbucks’ Q1 earnings call late Thursday, the company credited a slowdown in transaction costs to its holiday program, which was rolled out in mid-November. The company has long touted the holiday season as one of the most robust for business; as recently as the previous quarterly earnings report, CFO Scott Maw said the brand was prepared for increased traffic.
But the end of Q1 marked a downturn from earlier in that same period. Same-store sales in the U.S. and Americas only grew 2 percent, falling short of 3 percent predicted by FactSet. The company did hit that estimate in the first half of the quarter, which CEO Kevin Johnson said helped offset the subsequent falloff, when comps fell to just 1 percent.
Johnson attributed the decline to limited-time holiday beverages, holiday gift cards, and special holiday merchandise underperforming. “We are aggressively rationalizing our merchandise approach in conjunction with the transformation of our lobby strategy going forward,” Johnson said.
He also pointed to negative mall store comp performance, which trailed behind other locations. The rhetoric further hints at Starbucks’ plan to extricate itself from malls altogether. (Earlier this month the company settled with Simon Group Property over the closure of its 379 Teavana stores.)
Despite these factors, the holiday deceleration may bleed into 2018 with Starbucks expecting a “somewhat softer” second quarter. Maw said it was partially due to the residual challenges of Q1 but also singled out gift card sales, which were relatively flat. Given how key such items have been to comps, Maw said the company was taking a cautious viewpoint in looking to the second quarter.
Throughout the report, China remained a bright spot for Starbucks. Comps were up 6 percent and revenue expanded 30 percent.