KEY POINTS
* Starbucks on Tuesday reported weaker-than-expected quarterly earnings and revenue, fueled by a surprise decline in same-store sales.
* The coffee chain also slashed its forecast for its fiscal 2024 earnings and revenue, predicting that its cafes would keep underperforming for several quarters.
* Across all regions, Starbucks reported shrinking same-store sales and falling traffic.
Starbucks disclosed weaker-than-anticipated quarterly profits and revenue on Tuesday, driven by an unexpected dip in same-store sales.
The coffee conglomerate also downgraded its forecast for fiscal 2024 earnings and revenue, projecting prolonged underperformance in its cafes.
In after-hours trading, the company's shares plummeted by 12%.
"In a markedly challenging landscape, this quarter's outcomes fail to showcase the strength of our brand, our competencies, or the prospects that lie ahead," remarked CEO Laxman Narasimhan in a statement. "While falling short of our projections, we recognize the specific hurdles and opportunities immediately confronting us."
The firm experienced a 4% decline in same-store sales, accompanied by a 6% drop in cafe foot traffic during the quarter. Wall Street had expected a 1% uptick in same-store sales, according to StreetAccount estimates.
Starbucks observed dwindling same-store sales and diminished foot traffic across all regions.
In the United States, same-store sales contracted by 3%, paralleled by a 7% decline in foot traffic. This marks the second consecutive quarter of domestic market struggle for the company. Previously, executives attributed sluggish sales to boycotts fueled by "misconceptions" about the company's position on Israel.
The international segment of Starbucks reported a 6% decline in same-store sales, with both average ticket and transactions diminishing. In China, the company's second-largest market, same-store sales nosedived by 11%, driven by an 8% drop in average ticket size.
"In this climate, many consumers have become more discerning about where and how they allocate their funds," Narasimhan informed analysts during the company's conference call.
Here's how the company's reported figures compare to the expectations of Wall Street analysts surveyed by LSEG:
Adjusted earnings per share came in at 68 cents, falling short of the anticipated 79 cents.
Revenue amounted to $8.56 billion, below the expected $9.13 billion.
The coffee behemoth posted fiscal second-quarter net income attributable to the company of $772.4 million, or 68 cents per share, a decline from $908.3 million, or 79 cents per share, in the previous year.
Net sales experienced a nearly 2% decrease to $8.56 billion.
For fiscal 2024, Starbucks has revised its revenue growth outlook to the low single digits, down from the previous forecast of 7% to 10%. Projections for global and U.S. same-store sales growth have also been adjusted to a range from low single digits to flat, compared to the prior estimate of 4% to 6%. Same-store sales in China are anticipated to decline by single digits, contrasting with the earlier expectation of a single-digit increase.
Additionally, Starbucks now forecasts earnings per share growth ranging from flat to low single digits. Previously, it had projected earnings to increase by 15% to 20% in fiscal 2024.
The company anticipates sales improvement to commence in the fiscal fourth quarter.
Waning sales
Starbucks executives noted that the company's most devoted patrons have remained faithful, taking advantage of discounts offered through the company's mobile app. However, occasional coffee consumers have been purchasing Starbucks' macchiatos and cold brew less frequently, with Narasimhan suggesting that these customers crave greater variety in their coffee choices.
To entice these occasional visitors to come in more often, Starbucks plans to introduce a version of its app that allows customers to place orders without needing to be loyalty members.
Narasimhan also revealed that Starbucks is exploring ways to cater to overnight demand, spanning from 5 p.m. to 5 a.m. Following a pilot test that Narasimhan claimed doubled business, the company is keen on implementing strategies to meet this demand.
He also highlighted the success of the chain's lavender beverages, labeling them as one of their most triumphant launches. "Expanding upon this achievement, we are actively pursuing avenues to cultivate a $2 billion enterprise over the next half-decade," he remarked.
Other companies, including McDonald's and PepsiCo, have reported that low-income consumers have scaled back their spending and are seeking bargains this quarter.
"While it proved to be a challenging quarter, we've gleaned valuable insights from our own performance shortcomings and have honed our focus through a comprehensive roadmap of meticulously planned actions, clarifying the path ahead," stated CFO Rachel Ruggeri.
Narasimhan also announced that the company now anticipates supply-chain cost savings of $4 billion over the next four years, revising its previous forecast of $3 billion over three years.
