June 19, 2018

Starbucks sells Tazo to Unilever on disappointing 4Q revenue

04 November 2017, 12:30 | Lionel James

Starbucks sells Tazo to Unilever on disappointing 4Q revenue

Starbucks growth in Asia falls below expectations

Starbucks Corporation (NASDAQ:SBUX) is selling its Tazo Tea brand to Unilever plc (ADR) (NYSE:UL) for $384 million.

This acquisition is the latest in a series of deals by Unilever, an Anglo-Dutch consumer giant, to add smaller, healthier brands to expand its portfolio in a fast-growing specialty tea segment.

Through the agreement, Unilever has agreed to buy the Tazo brand, its recipes, intellectual property and inventory for $348mn.

"We continue to see significant growth in our tea business through our Teavana brand, and this transition supports our strategy to elevate the premium tea experience for our customers", says Starbucks CEO Kevin Johnson. The brand pulled in $112.5 million in revenue over the a year ago and UL believes that there is room for more growth.

Tazo, the companies' announcements explain, is sold primarily in grocery and convenience stores and in "mass channels" as tea packages, K-cup pods and. Starbucks acquired the brand in 1999 for $8.1 million, five years after Tazo was founded.

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Starbucks has removed its e-commerce platform as part of the streamlining, instead, will set its attention to mobile order improvements, innovation in food and beverage, investments in its own roasteries, and gaining share of at-home coffee. The company expects to launch a Starbucks-branded credit card with Chase this winter. The company also reported narrower operating margins and earnings per share of 54 cents. Adjusted earnings came to 55 cents per share, matching what analysts expected.

Starbucks total net income slipped 1.6% to $789 million, or 54 cents a share, on total net revenue of $5.7 billion for the three months ended October 1. Globally, Starbucks posted 2% growth in same-store sales, missing expectations. After excluding the effects of hurricanes Harvey and Irma - which mauled Texas and Florida during the quarter and forced Starbucks to close a total of 1,100 locations - same-store sales growth was 3%.

Because of the disappointing performance, Starbucks is revising its long-term projections. And the company committed to returning US$15 billion to investors over the next three years through dividends and stock buybacks.

Over the long-term, the café chain is targeting global comparable sales annual growth of between 3% and 5% and annual growth in consolidated net revenue of the high-single digits. But its same-store sales came lower than expected and, in the United States, fell far short of its historic 5% growth rate.

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