Starbucks coffee shop in Amsterdam.
Nicolas Economou | Nurphoto | Getty Images
Starbucks on Tuesday reported weaker-than-expected quarterly earnings and revenue due to an unexpected decline in same-store sales.
The coffee chain also lowered its fiscal 2024 earnings and revenue forecast, predicting that its cafes would underperform for several quarters.
The company’s shares fell 12% in extended trading.
“In an extremely challenging environment, this quarter’s results do not reflect the strength of our brand, our capabilities or our future opportunities,” CEO Laxman Narasimhan said in a statement. “It did not meet our expectations, but we understand the specific challenges and opportunities that lie immediately ahead.”
The company’s same-store sales fell 4%, while coffee shop traffic fell 6% in the quarter. Wall Street expected same-store sales to boost 1%, according to StreetAccount estimates.
Across all regions, Starbucks experienced degenerating same-store sales and traffic.
In the U.S., same-store sales dropped 3% with traffic down 7%. This is the second quarter in which the company is struggling with difficulties on the domestic market. Last quarter, executives blamed tardy sales on boycotts against the company stemming from a “misperception” about its stance on Israel.
Starbucks’ international segment saw same-store sales decline 6% as both average ticket volume and transaction volume declined. In China, Starbucks’ second-largest market, same-store sales fell 11%, helped by an 8% drop in average ticket prices.
“In this environment, many customers are being more stringent about where and how they spend their money,” Narasimhan told analysts on the company’s conference call.
Here’s what the company said compared to Wall Street expectations, based on a survey of analysts conducted by LSEG:
- Earnings per share: Adjusted 68 cents vs. expected 79 cents
- Income: $8.56 billion against the expected $9.13 billion
The coffee giant saw net income attributable to the company in its fiscal second quarter amount to $772.4 million, or 68 cents per share, compared with $908.3 million, or 79 cents per share, a year earlier.
Net sales dropped almost 2% to $8.56 billion.
For fiscal year 2024, Starbucks now expects low-single-digit revenue growth, up from its prior forecast of 7-10%. The company also revised its outlook for same-store sales growth globally and in the U.S. to a range of low single digits to flat from its previous forecast of 4% to 6%. Same-store sales in China are expected to decline by single digits, down from earlier forecasts of single-digit growth.
Starbucks also now expects earnings per share growth to range from flat to low single digits. It had previously forecast earnings to grow 15-20% in fiscal 2024.
The company forecasts that sales will begin to improve in the fiscal fourth quarter.
Degenerating sales
Executives say Starbucks’ most dedicated customers remained faithful and took advantage of discounts offered through the company’s mobile app. But executives say coffee drinkers who visit the coffee shop only occasionally are less likely to buy macchiatos and icy drinks at Starbucks. Narasimhan said these customers expect more variety from their coffee.
Starbucks plans to release a version of its app that will allow customers to place orders without having to be a member of a loyalty program to attract casual customers to visit more often.
Narasimhan said Starbucks is also exploring how to meet nighttime demand, from 5 p.m. to 5 a.m. The company conducted a pilot test which, according to Narasimhan, doubled its turnover.
He also said the chain’s lavender drinks were one of its most successful launches.
“Based on this success, we are aggressively pursuing opportunities to build a $2 billion business over the next five years,” he said.
McDonald’s, PepsiCo and other companies said this quarter that low-income consumers were cutting back on spending and looking for deals.
“While this was a hard quarter, we have learned from our own penniless performance and are focused on a comprehensive roadmap with thoughtful actions that clearly define the path forward,” Chief Financial Officer Rachel Ruggeri said in a statement.
Narasimhan also said the company now expects supply chain savings of $4 billion over the next four years, revising its earlier forecast of $3 billion over three years.
