Starbucks expresses confidence in rewards overhaul

NEW YORK, N.Y. – Starbucks expressed confidence Thursday that an overhaul of its rewards program will drive up sales over the long term, but warned that the transition could be bumpy.

The comments came after the company reported sales growth for the first three months of the year that fell short of Wall Street expectations. The Seattle-based chain said global comparable sales rose 6 per cent, including a 7 per cent increase in its flagship U.S. market.

While it’s still early, Starbucks said spending is up across loyalty members, including those who stood to lose out from the change.

“We are not seeing any of the noise that has been speculated on,” said Matt Ryan, Starbucks’ chief strategy officer, in a call with analysts.

The change in the U.S. went into effect just last week, with people earning rewards “stars” based on the amount of money they spend, rather than how often they visit. That means that people who only buy a plain $2.50 coffee would have to spend more to earn a free drink or food item.

The change had prompted worries that some angry customers would take their business elsewhere.

Despite the encouraging early signs, however, Starbucks executives warned that there could be “noise” in coming quarters as customers adjusted to the change. When asked about the mixed signals it seemed to be sending, Starbucks CEO Howard Schultz, who had been quietly listening from South Africa as other executives fielded questions, chimed in.

“We’re building something so enduring and so unique I think it’s going to be one of the most significant changes to the equity of the brand,” Schultz said.

Starbucks has said the change will help it give customers more ways to earn rewards stars. Later this year, for instance, it plans to introduce a Visa prepaid debit card that lets people earn stars for the program.

For the first three months of the year, Starbucks said sales in the U.S. rose as it pushed more food like breakfast sandwiches and salads intended to draw people in the afternoons. Starbucks Chief Operating Officer Kevin Johnson said food surpassed more than 20 per cent of sales in the U.S. for the first time.

Sales rose 3 per cent at established locations in Asia. Sales for the unit including Europe, the Middle East and Africa rose 1 per cent. Taken together, global sales rose 6 per cent in the period.

Total revenue, which factors in new store openings, rose 9 per cent to $4.99 billion. That was short of the $5.03 billion analysts expected, according to FactSet.

Shares of Starbucks stock fell 4 per cent to $58.23 in after-hours trading.

Profit for the quarter rose 16 per cent to $575.1 million, or 39 cents per share, in line with expectations.

The company reaffirmed its fiscal 2016 financial targets and said its board authorized the repurchase of another 100 million shares of stock, raising the total number of shares available for buybacks to 125 million.