The glass appears to be half empty for Starbucks (SBUX) this quarter.
As for second-quarter results, the company fell short of expectations across the board, reporting lower-than-expected sales, profits and same-store sales growth as customers scaled back the frequency of their visits and the size of their orders.
Its shares opened down 14% on Wednesday; The results were released after the market closed on Tuesday.
CEO Laxman Narasimhan called it an “extremely challenging environment.”
During the earnings call, he added that the macro headwinds “particularly as they relate to the pressures that consumers are facing, particularly casual customers, … that’s where the challenge lies.”
This is Starbucks’ first quarterly sales decline since 2020, when COVID-related closures rocked the industry.
Second-quarter revenue fell 2% year over year to $8.6 billion. Adjusted earnings per share also fell 8% to $0.68.
Global same-store sales fell 4% year over year as transactions fell 6%, partially offset by a 2% increase in average ticket size.
Starbucks tried to lure customers with afternoon promotions and new offerings like lavender lattes, which Narasimhan said “performed almost as well as PSL last quarter.” [pumpkin spice latte].”
However, the new additions to the menu didn’t seem to affect the coffee giant.
In the North American and U.S. stores, same-store sales fell 3%, with foot traffic down 7% year-over-year, although ticket size increased 4%.
To attract casual customers, Starbucks plans to add new promotions to its app. In the US, 31% of all transactions were completed via the app in the second quarter. However, the number of 90-day members with an active loyalty program fell to 32.8 million, compared to 34.3 million last quarter.
Narasimhan also pointed out that speed of service is an area of opportunity. Currently, many customers are not completing their app orders due to long wait times or lack of product availability. The company is “increasing investment in the supply chain to further improve availability,” he said.
New products such as boba tea-like pearls, zero- to low-calorie energy drinks and other sugar-free syrups are also on offer.
In international business, same-store sales fell 6%, with foot traffic and ticket size declining 3%. Like McDonald’s (MCD), Starbucks said the conflict in the Middle East has weighed on international sales.
Narasimhan expressed concern about current events and the spread of misinformation about the company in an internal memo in mid-December.
However, the biggest decline was in China, with same-store sales down 11%, foot traffic down 8%, and average ticket size down 4%.
“Performance was impacted by decline in casual customers, changing holiday patterns, strong promotional environment and normalization of customer behavior after market opening last year,” Narasimhan said in the conference call.
Branches in the US and China make up 61% of the company’s portfolio.
The company also revised its 2024 outlook for the third time this fiscal year.
As of the second quarter, Starbucks expects global sales growth in the low single digits for 2024, down from the previous range of 7% to 10%, which itself was below a previous forecast of 10% to 12%.
Global and U.S. same-store sales are expected to decline in the low single digits or remain flat, versus the previous growth range of 4% to 6%. China’s same-store sales are expected to post a single-digit decline, compared to previously expected low-single-digit growth.
Starbucks originally expected same-store growth to be in the mid-single digits across all of its markets.
Here’s what Starbucks reported compared to Wall Street estimates, according to Bloomberg consensus estimates:
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Adjusted earnings per share: $0.68 versus $0.80
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Revenue: $8.56 billion versus $9.13 billion
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Same-store sales growth: -4% vs. 1.46%
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North America: -3% vs. 2.05%
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US: -3% vs. 2.31%
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International: -6% vs. 1.36%
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China: -11% vs. -1.62%
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Foot traffic growth: -6% vs. -0.27%
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North America: -7%, compared to an increase of 6% in the second quarter of 2023
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International: -3%, compared to an increase of 7% in the second quarter of 2023
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Ticket size growth: 2% vs. 2.41%
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North America: 4%, compared to an increase of 5% in the second quarter of 2023
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International: -3%, compared to the unchanged value in the second quarter of 2023
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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