Starbucks reported disappointing second-quarter results, with revenue falling 2% year over year to $8.56 billion, missing analyst expectations. Adjusted earnings per share also fell short at 68 cents, causing shares to drop by 11.5%. The company cited transitory challenges, severe weather, and a challenging consumer backdrop for the decline in store traffic, leading to a larger miss than anticipated. The disappointing performance in North America, particularly a 3% decline in comparable store sales, raised concerns about Starbucks’ ability to attract customers amid price increases and competition.
CEO Laxman Narasimhan outlined three execution opportunities to address the challenges faced by Starbucks in the US market. These include meeting demand across dayparts, launching new products, and providing more value for occasional and non-Rewards customers. The company is also working on improving operations and decreasing wait times in stores to drive growth. Despite the decline in profitability due to deleverage, incremental investments, and increased promotional activity, efficiencies generated through the reinvention plan helped offset some of the challenges.
The international segment also saw a decline in comparable store sales, particularly in China, where sales fell 11% due to higher promotional activity and increased competition from local players. Revenue and comps in other international markets such as Latin America, the Asia Pacific, and Japan showed growth excluding China. Following the disappointing results, Starbucks revised its fiscal year 2024 guidance, lowering total global revenue growth, comp growth, China comparable sales, net new store growth, operating margins, and adjusted EPS growth expectations.
The sharp decline in Starbucks’ stock price led to a downgrade in its rating and a cut in the price target to $90, reflecting concerns about the company’s ability to overcome headwinds and drive growth in the near term. The company is facing challenges related to store inefficiencies, a slow recovery in China, and a decline in traffic at its stores. While management is working on addressing these issues through new initiatives and investments, the uncertain timing of a rebound in traffic and profitability raises concerns among investors.
Despite efforts to improve operations, launch new products, and attract occasional customers, Starbucks continues to face challenges in its core markets. The disappointing results in North America and China, along with revised guidance for fiscal year 2024, indicate a tough road ahead for the coffee giant. With uncertainties surrounding the timing of a recovery, investors are cautious about the company’s ability to drive growth and profitability in the future. As a result, Starbucks’ stock performance will likely be closely monitored in the coming quarters to assess its ability to navigate through the current challenges and deliver long-term value to shareholders.
