Starbucks coffee in Amsterdam.
Nicola Economou | norphoto | Getty Images
Starbucks On Tuesday, it reported weaker-than-expected quarterly earnings and revenue, driven by a surprise decline in same-store sales.
The café chain also lowered its profit and revenue forecasts for fiscal year 2024, and expects the performance of its cafés to remain weak for several quarters.
The company's shares fell 12% in extended trading.
“In a 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 did not meet our expectations, but we understand the specific challenges and opportunities that lie directly before us,” he added.
Same-store sales fell 4% with traffic to its cafes down 6% during the quarter. Wall Street had expected same-store sales to grow 1%, according to StreetAccount estimates.
In all regions, Starbucks reported shrinking same-store sales and lower traffic.
In the United States, same-store sales fell 3% with traffic down 7%. This marks the second quarter in which the company's domestic market has suffered. Last quarter, executives blamed a sales slowdown on a boycott targeting the company over “misperceptions” of its stance on Israel.
Starbucks' international segment reported a 6% decline in same-store sales as average tickets and transactions declined. In China, Starbucks' second-largest market, same-store sales fell 11%, due to an 8% drop in the average ticket.
“In this environment, many customers are becoming more scrupulous about where and how they spend their money,” Narasimhan told analysts on a company conference call.
Here's what the company reported compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG:
Earnings per share: 68 cents adjusted vs. 79 cents expected Revenue: $8.56 billion vs. $9.13 billion expected
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 to grow in the low single digits, down from its previous forecast of 7% to 10%. The company also revised its forecast for global and U.S. same-store sales growth to the low single digit range to a flat level from its previous forecast of 4% to 6%. Same-store sales in China are expected to decline by single digits, down from previous expectations for a single-digit increase.
Starbucks now also expects earnings per share growth in the flat to low single digits range. It previously expected its profits to rise 15% to 20% in fiscal 2024.
The company expects sales to start improving in the fourth fiscal quarter.
Sales decline
Most of Starbucks' loyal customers remained loyal and used discounts offered through the company's mobile app, executives said. But coffee drinkers who visit the company only occasionally are now buying Starbucks macchiatos and cold drinks more often, executives said. These customers want more variety in their coffee, Narasimhan said.
Starbucks plans to offer a version of its app that allows customers to order without being loyalty members in order to entice these occasional customers to visit frequently.
Starbucks is also exploring how to meet demand overnight, from 5 p.m. to 5 a.m., Narasimhan said. The company conducted a beta test, which Narasimhan said doubled business.
He also said that the chain's lavender drinks were among its most successful launches.
“Building on this success, we are aggressively pursuing options to build a $2 billion business over the next five years,” he said.
McDonald's, PepsiCo Other companies said this quarter that lower-income consumers have cut back on spending and are looking for deals.
“Although it was a difficult quarter, we learned from our underperformance and strengthened our focus with a comprehensive roadmap of well-thought-out actions that makes the path forward clear,” CFO Rachel Ruggieri 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.
