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Starbucks shares plunge on weak sales outlook and store closure

Late on Tuesday, Starbucks rolled out some long-term strategic initiatives to regain momentum on both the top and bottom line. The Seattle-based company stated that it plans to shut more unprofitable stores in big US cities in the fiscal year 2019 and will slow the pace at which it opens new stores. Starbucks also provided weak sales outlook. The news sent Starbucks shares plunging 4.54% during the after-hours trading.

The coffee store chain, which has over 8,000 stores nationwide, told investors that it plans to shutter 150 stores in the next fiscal year, highlighting a three-fold increase in the number of stores it plans to close. Annually, Starbucks shuts no more than 50 underperforming stores. The company, however, plans to open new stores in other regions, but the overall rate at which it opens those stores will be slow.

The Seattle-based company stated that it plans to shut more unprofitable stores in big US cities in the fiscal year 2019 and will slow the pace at which it opens new stores.

For the upcoming quarter, Starbucks provided weaker-than-expected sales outlook. The company expects just 1% rise in its same-store sales, much below the analysts’ estimate of 3%.

The strategic plans — which includes accelerating growth in China and US, focusing on shareholder return, as well as expanding the global reach of the company — are expected to boost the company’s returns. The company now plans to return approx. $25 billion in cash to its shareholders either through share buybacks or dividends through 2022. Starbucks declared a 20% hike to its dividend to a quarterly return of $0.36 a share.

“While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” said CEO Kevin Johnson in a statement.

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