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Off-price retailer to explore alternatives

BY Marianne Wilson

Stein Mart is looking at its options in the wake of declining sales.

The retailer announced it has put together a special committee, appointed by the board, that, along with management, will explore all opportunities to improve operating performance and strategic alternatives. Stein Mart did not set a timetable for completion of this process.

“Given the continuing challenges of the retail environment, it is prudent for us to review our strategic options while focusing on ways to improve our business,” stated CEO Hunt Hawkins, CEO, Stein Mart, which operates 293 stores across 31 states.

Stein Mart’s same-store sales fell 6.9% in its third quarter, on top of a 4.6% decline in the year-ago period. Net loss for the period increased to $14.6 million from $11.0 million. On its earnings conference call, management said the retailer was trimming back excess apparel inventory and working to keep a tighter control on expenses.

Stein Mart’s decline comes as other other-price retailers, including TJX Cos. and Ross, are flourishing. The retailer has struggled to bring in national brands and has been less cost-competitive than some of its rivals, according to CNBC.

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Analysis: Starbucks needs to tweak domestic strategy; improve food offerings

Although Starbucks claims its first-quarter results show its engines of growth are spinning, the pace of increase suggests that they are idling rather than pushing the company forward.

Overall revenue growth of 5.9% is not bad. However, it is driven mostly by expansion in China and the opening of new stores. As such, it hides an underlying softness, although we would stop short of saying problems, in the rest of the business.

Barring last quarter – which was affected by one less week of trade than the prior year – Starbucks growth trajectory has slowed. This is most noticeable in the United States, where both overall and comparable sales growth is trending lower.

This slowdown does not mean the domestic business is broken. Instead, it is a function of maturity and saturation which has made both adding new stores and driving performance from existing locations steadily more challenging. Given that this dynamic will only worsen over time, it raises a question as to how Starbucks intends to remedy the issue.

Part of the solution has been to look to the premium market for growth, using the Starbucks Reserve and Roastery formats as vehicles for expansion. We believe this is a sound strategy that Starbucks is executing well. However, in the context of the overall business, this is only ever going to be a niche operation that makes a small contribution to growth. Premium has neither the power nor potential to reignite US performance.

As such, Starbucks has to look to get more out of its existing stores. Given the popularity of Starbucks, this may seem like a tall order. However, we believe there are many areas – especially in foodservice – where Starbucks underperforms and could work harder. Admittedly, steps have been taken to remedy this, and the sales mix of food is slowly advancing towards the 25% by 2020 target that Starbucks set itself.

Starbucks food offer is not terrible but compared to more innovative companies like Pret; there is a lot of room for improvement. To us, Starbucks efforts in this area are incremental and slow, and we think the company should push a great deal harder.

This imperative isn’t just a matter of going on the offensive; it is also about building a defensive position. Some operators, like Dunkin’, are advancing into Starbucks core coffee territory. Meanwhile, smaller players like Pret are nibbling at the edges of Starbucks’ market share. Whether these players will be successful in the longer term remains to be seen, but it would do Starbucks no harm to bolster its proposition and appeal.

Increasing loyalty also extends to how stores operate. During peak times, some shops are busy, and service is painfully slow – something we believe is becoming more problematic over time. Although Starbucks uses technology well, we think it needs to look again at how it can use digital solutions ordering in store to cut wait times. Starbucks may well balk at such a suggestion, saying it flies in the face of the type of atmosphere it wishes to create. However, in a busy city location where the priority is to get in and out as quickly as possible, we believe the idea has merit and would also help to improve margins.

Fortunately, Starbucks is a solid business with good growth prospects in markets like China. As such, it has some time to tweak its domestic strategy. However, the time to do that is now.

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Starbucks brews up slower growth in Q1, but earnings top estimates

BY Marianne Wilson

Starbucks’ revenue and same-store sales fell slightly short of Street estimates even amid a strong performance from the China region.

Starbucks earned $2.25 billion, or $1.57 a share, in the period ended December 31, compared with $752 million, or 51 cents a share, in the year-ago period. Adjusted for one-time items, Starbucks earned 65 cents a share, beating the 57 cents per share analysts expected. Profit gains were fueled by the sale of Starbucks’ Tazo tea brand and its takeover of 1,400 stores in China, which were previously part of a joint venture.

Net revenues rose 6% to $6.1 billion from $5.7 billion, just missing Street forecasts. On the chain’s earnings call, president and CEO Kevin Turner said that sales in the U.S. were softer than expected due to weak sales of limited-time holiday beverages, merchandise and gift cards.

Starbucks’ global same-store sales rose 2%, missing Street forecasts of 3%, and below the 3% growth the company posted in the same quarter a year ago. Same-store sales in the U.S. sales increased 2%. In China, where Starbucks is “laser-focused” on accelerating growth, same-store sales rose 6% and revenue grew 30%.

“Today, Starbucks has two powerful, independent but complementary engines driving our global growth, the U.S. and China,” said president and CEO Kevin Turner. “Our work to streamline the company is sharpening our focus on our core operating priorities.”

Citing a lower U.S. tax rate, Starbucks raised its fiscal 2018 earnings forecast to a range of $2.48 to $2.53 per share, excluding items, up from $2.30 to $2.33 per share previously.

Starbucks said that membership in its rewards program in the U.S. grew 11% to 14.2 million, with member-spend representing 37% of U.S. company-operated sales. Mobile order and pay represented 11% of U.S. company-operated transactions.

The coffee giant opened 700 net new stores globally, bringing total store count to 28,039 across 76 markets.

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