The world’s largest coffee chain said a mix of issues impacted sales. In the U.S., the company saw a sharper and faster decline in consumer confidence and spending than it had anticipated
Starbucks has lowered its expectations for the full year, promising new beverages and promotions after customer traffic decreased in a dismal second quarter.
The Seattle-based chain of coffee houses reported a 2% decline in revenue for the January-March period, falling short of Wall Street’s $9.12billion estimate. This marks the company’s first quarterly revenue decline since late 2020. “Our performance this quarter was disappointing and did not meet our expectations,” Starbucks chief executive officer, Laxman Narasimhan, stated during an investor conference call.
Starbucks attributed the sales decline to a confluence of factors. In the United States, the company witnessed a steeper and more rapid decline in consumer confidence and spending than anticipated.
The Conference Board, a business research organization, reported on Tuesday that Us consumer confidence fell for the third consecutive month in April as consumers grapple with rising prices and high interest rates. In addition, Starbucks stated that inclement weather resulted in temporary store closures in the US during the quarter.
In China, Starbucks noted that the post-COVID recovery has been erratic, and the company is facing increased price competition. Starbucks is also facing ongoing boycott of its stores for its perceived support of Israel in the war in Gaza.
Customers in the Middle East and elsewhere began boycotting the brand in the fall after it sued Workers United, the union organizing its workers, over a pro-Palestinian message posted on a union social media account.
Starbucks has said that the lawsuit was aimed at stopping the union from using the company’s name and logo, which it says confuses customers. Starbucks and the union have paused the court case and are now in mediation. But the company has also taken steps to undo the damage.
Last month, Starbucks donated $3million to World Central Kitchen to provide food aid in Gaza. Starbucks reported a 4% drop in its same-store sales – or sales at stores open for at least a year – in its fiscal second quarter.
This was contrary to Wall Street’s expectation of a 1% increase, according to analysts polled by FactSet. In the US, despite customers spending more per visit, this wasn’t enough to offset a 7% decrease in transactions.
In China, the company’s second-largest market, same-store sales plummeted by 11%. Starbucks has now revised its full-year same-store sales forecast to be flat or fall by single-digit percentages, down from a growth of 4% to 6%. It also expects full-year revenue growth in the low single-digit range, down from 7% to 10%.
Additionally, it’s forecasting flat to low-single digit earnings growth, down from 15% to 20%. Starbucks is aiming to boost US store traffic this summer with new drinks, including its first energy beverage and sugar-free customizations for most beverages later in the year. Following a successful pilot, the company plans to introduce overnight service in many markets and is working on improving product availability and service speed.
Starbucks lost some customers due to shortages of its potato, cheddar and chive bakes after their introduction earlier this year. From July, the Starbucks Rewards app will be open to non-Rewards customers, allowing them to benefit from its deals and target occasional customers whose visits to Starbucks have decreased.
“In this environment, many customers are being more exacting about where and how they spend their money,” said CEO Laxman Narasimhan. “We need to be able to reach and communicate with our customers in a way that demonstrates our value.”
Starbucks’ net income fell by 15% to $772.4 million (68 cents per share), below Wall Street’s expectations of 80 cents per share. Starbucks’ sentiments were mirrored earlier on Tuesday by McDonald’s, which also noted a decrease in customer visits in major markets such as the US and the UK due to inflation-hit customers dining out less frequently.
Similar to Starbucks, McDonald’s announced its intention to enhance deals and communicate more about product value.
