Starbucks Reports Weaker-Than-Expected Quarterly Earnings and Revenue, Cutting Forecast

On a Tuesday, April 30 in the year 2024, Starbucks reported a decrease in quarterly earnings and revenue, falling short of expectations. The company experienced a significant drop in same-store sales and made a downward revision of its fiscal 2024 earnings and revenue forecast, projecting continued underperformance for several quarters. This unexpected turn of events caused the company's shares to plummet by 12% in extended trading.

CEO Laxman Narasimhan expressed disappointment in the results, stating, "In a highly challenged environment, this quarter's results do not reflect the power of our brand, our capabilities or the opportunities ahead." He acknowledged that the specific challenges and opportunities immediately in front of the company were well understood despite falling short of expectations. The same-store sales witnessed a decline of 4%, accompanied by a 6% decrease in café traffic, much below the anticipated 1% growth projected by StreetAccount estimates. Similarly, Starbucks reported diminishing same-store sales and declining traffic across all its regions, including a 3% decrease in the U.S. and a 6% decline in its international segment, particularly in China.

Financial Comparison with Wall Street Expectations

Starbucks' financial performance fell below Wall Street expectations, with earnings per share at 68 cents adjusted compared to the anticipated 79 cents and net sales dropping by nearly 2% to $8.56 billion against the expected $9.13 billion in revenue. The fiscal second-quarter net income attributable to the company stood at $772.4 million or 68 cents per share, reflecting a decline from a year earlier. This downturn in earnings and revenue has led the company to revise its forecasts for fiscal 2024.

Revised Projections and Strategies

For fiscal 2024, Starbucks now expects a low single-digit revenue growth, a significant drop from its prior forecast 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, down from its previous forecast of 4% to 6%. Additionally, same-store sales in China are expected to decline by single digits, as opposed to the earlier outlook of a single-digit increase. The company also adjusted its expectations for earnings per share growth, now anticipating a flat to low single-digit increase, a notable revision from the initial forecast of a 15% to 20% climb.

Starbucks anticipates a turnaround in sales performance during the fiscal fourth quarter. The company highlighted that its most loyal customers continued to utilize discounts offered through the mobile app, while occasional patrons reduced their purchases of macchiatos and cold brew. To attract these occasional customers, Starbucks plans to offer a non-loyalty member version of its app for more frequent visits. The company is also exploring ways to address overnight demand, indicating a doubling in business during a pilot test conducted from 5 p.m. to 5 a.m. Furthermore, Starbucks aims to capitalize on the success of its lavender drinks and aggressively pursue options to build a $2 billion business over the next five years.

In response to the changing consumer behavior, Starbucks is adapting its strategies to address the shift in demand, particularly from low-income consumers seeking deals. Additionally, the company emphasized its comprehensive roadmap of actions to navigate the path forward, reflecting a sharpened focus after learning from its underperformance. Starbucks also anticipates significant supply-chain cost savings of $4 billion over the next four years, surpassing its previous forecast of $3 billion over three years.