On Tuesday, Starbucks reported weaker-than-expected quarterly revenue and earnings, driven by an unexpected decline in same-store sales.
The coffee chain also trimmed its revenue and earnings projections for fiscal year 2024, predicting that their cafes will continue to underperform for several quarters.
The company’s stock 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 falls short of our expectations, but we understand the specific challenges and opportunities in front of us.”
The company’s same-store sales dropped 4% as foot traffic to their cafes decreased by 6% in the quarter. Wall Street had anticipated a 1% growth in same-store sales, according to StreetAccount estimates.
Across all regions, Starbucks reported declines in same-store sales and traffic.
In the U.S., same-store sales dropped 3% as traffic fell 7%. This marks the second consecutive quarter of difficulties in the company’s home market. In the previous quarter, executives attributed sluggish sales to a boycott targeting the company over “misperceptions” regarding its stance on Israel.
Starbucks’ international segment reported a 6% decline in same-store sales due to decreased average ticket and transactions. In China, Starbucks’ second-largest market, same-store sales plummeted 11%, driven by an 8% decrease in average ticket.
“In this environment, many customers are more discerning about where and how they choose to spend their money,” Narasimhan told analysts on the company’s conference call.
Here’s how the company fared compared to Wall Street expectations, based on analyst surveys by LSEG:
The coffee giant reported second fiscal quarter net income 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 year 2024, Starbucks now expects low single-digit revenue growth, down from previous projections of 7% to 10%. The company also revised its projections for global and U.S. same-store sales growth to a range of low single digits to flat from previous projections of 4% to 6%. Same-store sales in China are expected to decline by single digits, down from previous views indicating single-digit growth.
Starbucks now also expects earnings per share growth in the flat to low single-digit range. Previously, the company forecasted a 15% to 20% increase in earnings for fiscal year 2024.
The company anticipates sales will start to improve in the fourth fiscal quarter.
Sales Slump Starbucks’ most loyal customers remained loyal and utilized discounts offered through the company’s mobile app, executives said. But occasional coffee lovers have been less frequent purchasers of Starbucks’ macchiatos and cold brews, the executives said; Narasimhan said these customers want more variety from their coffee.
Starbucks plans to offer a version of its app that allows customers to place orders without becoming loyalty members to attract more casual visitors.
Narasimhan said Starbucks is also exploring ways to meet evening demand, from 5 p.m. to 5 a.m. The company conducted pilot tests, which Narasimhan said doubled business.
He also said the chain’s lavender drinks were among the most successful launches.
“Building on that success, we are aggressively pursuing options to build a $2 billion business in the next five years,” he said.
McDonald’s, PepsiCo, and other companies have said in this quarter that low-income consumers have pulled back on spending and are seeking deals.
“While this was a tough quarter, we are learning from our own underperformance and focusing our attention with a comprehensive roadmap of thoughtfully considered actions making the path forward clear,” CFO Rachel Ruggeri said in a statement.
Narasimhan also said the company now expects to save $4 billion in supply chain cost savings over the next four years, revising previous projections of $3 billion over three years.
