A Starbucks cafe in Amsterdam.
Nicolas Economou | Photo only | Getty Images
Starbucks reported weaker-than-expected quarterly earnings and sales on Tuesday, driven by a surprise decline in same-store sales.
The coffee chain also lowered its forecast for its fiscal 2024 earnings and sales, predicting that its cafes would continue to underperform for several more 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 the opportunities ahead,” CEO Laxman Narasimhan said in a statement. “It has not met our expectations, but we understand the specific challenges and opportunities that lie immediately ahead.”
The company’s same-store sales fell 4% as traffic at its cafes fell 6% in the quarter. Wall Street was expecting same-store sales growth of 1%, according to StreetAccount estimates.
Across all regions, Starbucks reported declining same-store sales and traffic.
In the US, same-store sales fell 3% while traffic fell 7%. This is the second quarter in which the company’s home market has struggled. In the most recent quarter, executives blamed sluggish sales on boycotts against the company due to “misperceptions” of its stance toward Israel.
Starbucks’ international segment saw same-store sales decline 6% as both average ticket price and transactions declined. In China, Starbucks’ second-largest market, same-store sales fell 11%, driven by an 8% decline in average tickets.
“In this environment, many customers have become more discerning about where and how they want to spend their money,” Narasimhan told analysts on the company’s conference call.
Here’s what the company reported compared to Wall Street’s expectations, based on an analyst survey by LSEG:
- Earnings per share: 68 cents adjusted versus 79 cents expected
- Revenue: $8.56 billion versus expected $9.13 billion
The coffee giant reported fiscal second-quarter net income attributable to the company of $772.4 million, or 68 cents per share, down from $908.3 million, or 79 cents per share, a year earlier.
Net sales fell nearly 2% to $8.56 billion.
For fiscal 2024, Starbucks now expects revenue growth in the low single digits, down from its previous forecast of 7% to 10%. The company also revised its forecasts for global and U.S. same-store sales growth to a range in the low single digits or flat, from its previous forecast of 4% to 6%. Same-store sales in China are expected to decline single-digit, after previously forecasting a single-digit increase.
Starbucks also now expects flat to low single-digit earnings per share growth. The company had previously forecast its profits would rise 15% to 20% in fiscal 2024.
The company forecasts sales will improve in the fiscal fourth quarter.
Declining sales
Starbucks’ most engaged customers remained loyal and took advantage of discounts offered through the company’s mobile app, executives said. But coffee drinkers who visit only occasionally are less likely to buy Starbucks macchiatos and cold brew, executives say; Narasimhan said these customers want more variety in their coffee.
Starbucks plans to offer a version of its app that allows customers to order without being a member of a loyalty program to attract these casual customers to visit more often.
Narasimhan said Starbucks is also looking at how to meet late-night demand from 5 p.m. to 5 a.m. The company ran a pilot test, which Narasimhan says doubled business.
He also said the chain’s lavender drinks were one of its most successful launches.
“Building on this success, we are aggressively exploring opportunities to build a $2 billion business over the next five years,” he said.
MC Donalds, PepsiCo and other companies said this quarter that low-income consumers have cut back on spending and are looking for deals.
“Although it was a difficult quarter, we learned from our own poor performance and sharpened our focus with a comprehensive roadmap of well-thought-out actions that makes the path forward clear,” CFO Rachel Ruggeri said in a statement.
Narasimhan also said the company now expects supply chain cost savings of $4 billion over the next four years, revising its previous forecast of $3 billion over three years.
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2024-05-01 00:17:26
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