The glass looks half empty for Starbucks (SBUX) this quarter.
For its second quarter earnings, the company missed all expectations, reporting lower-than-expected growth in revenue, earnings and store sales as customers scaled back the frequency of their visits and the size of their orders.
CEO Lakshman Narasimhan called it a “highly challenging environment.”
During the earnings call, he said macro headwinds, “particularly around the pressures that consumers face, particularly with the occasional customer … that’s where the challenge is.”
It’s Starbucks’ first quarterly sales decline since 2020, when COVID shutdowns roiled the industry.
Second-quarter revenue fell 2% year over year to $8.6 billion. Adjusted earnings per share also declined 8% to $0.68.
Global same-store sales declined 4% from a year ago as transactions declined 6%, partially offset by a 2% increase in average ticket size.
Shares of the coffee chain are down more than 12% in after-hours trading.
Starbucks attempted to lure customers with afternoon promotions and new offerings such as lavender lattes, which Narasimhan said “performed about as well as the PSL (pumpkin spice latte) last quarter”.
However, the menu innovations haven’t caused much of a stir for the coffee giant.
At its North America and US business, same-store sales declined 3%, with foot traffic down 7% year over year, although ticket size increased 4%.
To attract occasional customers, Starbucks plans to add new promotions to its app. In the US, 31% of all Q2 transactions occurred through its app. However, the number of 90-day active loyalty members declined to 32.8 million compared to 34.3 million in the previous quarter.
Narasimhan also described the pace of service as an area of opportunity. Currently, many customers do not complete their app orders due to long waiting times or lack of product availability. “The company is increasing investments in the supply chain to further improve availability,” he said.
New products like boba tea like pearls, zero-calorie energy drinks and more sugar-free syrups are also available.
For its international business, same-store sales declined 6%, with foot traffic and ticket size falling 3%. Similar to McDonald’s, Starbucks said the conflict in the Middle East impacted international sales.
Narasimhan shared his concerns about current events and the misinformation being spread about the company in an internal memo in mid-December.
But the biggest declines were seen in China, with same-store sales down 11%, foot traffic down 8% and average ticket size down 4%.
“Performance was impacted by occasional decline in footfall, changing holiday patterns, high promotional environment and normalization of customer behavior after market reopening last year.” Narasimhan said on the call.
Stores 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 Q2, Starbucks expects global revenue growth in 2024 to be in the low-single digits, down from the previous range of 7% to 10%, which itself was down from prior guidance of 10% to 12%.
Global and U.S. same-store sales are expected to see a low single-digit decline from the previous range of 4% to 6% growth. China’s same-store sales are expected to see a single-digit decline, down from the low single-digit growth previously expected.
Starbucks originally expected same-store growth 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 vs $0.80
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Income: $8.56 billion vs $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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We: -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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Increase in foot traffic: -6% vs -0.27%
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North America: -7%, compared to 6% in Q2 2023
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international: -3%, compared to 7% in Q2 2023
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Increase in ticket size: 2% vs 2.41%
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North America: 4% compared to 5% in Q2 2023
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international: -3% compared to flat in Q2 2023
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Brooke DePalma is a senior reporter at Yahoo Finance. Follow him on Twitter @Brookdipalma Or email him at [email protected].
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