Starbucks (NASDAQ:SBUX) found itself on shaky ground as its second-quarter earnings report fell well short of expectations, triggering a sharp decline in its stock value. With revenue, earnings, and same-store sales growth all disappointing investors, the coffee giant’s shares tumbled by 14% following the announcement, painting a bleak picture for the company’s immediate future.
CEO Laxman Narasimhan attributed the disappointing results to what he described as “a highly challenged environment,” citing macroeconomic headwinds and shifting consumer behaviors as primary factors contributing to the downturn. This marks Starbucks’ first quarterly sales decline since the onset of the COVID-19 pandemic in 2020, reflecting the enduring challenges faced by the industry.
For the second quarter, Starbucks reported a 2% year-over-year drop in revenue, totaling $8.6 billion, while adjusted earnings per share fell by 8% to $0.68. Global same-store sales experienced a significant decline of 4% compared to the previous year, driven by a 6% decrease in transactions partially offset by a 2% increase in average ticket size.
Despite efforts to entice customers with afternoon promotions and new menu offerings like lavender lattes, Starbucks struggled to stimulate demand effectively. In North America and the US specifically, same-store sales declined by 3%, with foot traffic plummeting by 7% year over year, although average ticket size saw a modest 4% increase.
To address these challenges, Starbucks intends to introduce new promotions through its app, which accounted for 31% of all Q2 transactions in the US. However, the number of active loyalty members declined to 32.8 million from 34.3 million in the previous quarter. Narasimhan also highlighted the need to improve speed of service and product availability to enhance customer satisfaction and retention.
Internationally, Starbucks faced similar struggles, with same-store sales declining by 6% overall. Particularly in China, the company experienced an 11% drop in same-store sales, attributed to a variety of factors including changing consumer behaviors and holiday patterns.
Looking ahead, Starbucks revised its 2024 outlook, projecting global revenue growth in the low-single digits, down from previous estimates of 7% to 10%. Same-store sales in the US and globally are expected to either decline or remain flat, with China’s same-store sales anticipated to experience a single-digit decline.
The company’s disappointing performance in Q2 was starkly contrasted by Wall Street estimates, with adjusted earnings per share falling short at $0.68 compared to an expected $0.80, and revenue totaling $8.56 billion versus an estimated $9.13 billion. Same-store sales growth also failed to meet expectations across all regions, reflecting the severity of the challenges facing Starbucks as it navigates a rapidly evolving market landscape.
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