Starbucks's Financials Are In Needs Of A Pick Me Up Coffee

On Tuesday, Starbucks Corporation SBUX delivered a depressing quarterly report and forecast. Weaker-than-expected quarterly revenue and earnings came as the result of a surprise decline in same-store sales along with falling traffic across regions, with the coffee chain predicting its shops will continue to underperform over the following quarters. Upon the report, shares tanked 12% as CEO Laxman Narasimhan admitted that amid a highly challenging environment, this quarter’s results did not meet expectations, emphasizing that they do not reflect the power of the brand, its capabilities and opportunities. Like McDonald’s Corporation MCD and PepsiCo Inc PEP, Starbucks’s results reflecting that stretched consumers have pulled back on spending.

A Weaker-Than-Expected Fiscal Second-Quarter

For the quarter ended on March 31st, Starbucks reported revenue dropped 2% YoY to $8.56 billion, falling short of $9.13 billion that LSEG expected as same-store sales fell 4% and traffic contracted 6%. StreetAccount expected same store growth of 1%. Its home market continued to struggle as U.S., same-store sales dropped 3% as traffic plummeted 7%. International segment same-store sales declined 6% as both average ticket and transactions dropped. As for its second biggest market, China plunged 11% as the average ticket declined 8%.

Net income attributable to the company dropped from last year’s $908.3 million to $772.4 million. Adjusted earnings per share of 68 cents per share also came short of 79 cents that LSEG estimated. 

A Slashed Fiscal 2024 Forecast

Starbucks lowered its prior revenue growth guidance that was from 7% to 10% by guiding for revenue growth in the low single digits. While it previously projected global and U.S. same-store sales growth in a range from 4% to 6%, it now guided for low single digits to flat. Also, Starbucks previously guided for a single digit increase in China’s same-store sales, while it now expects a decline by single digits. Previously, Starbucks guided for earnings growth from 15% to 20% while it now expects growth in ranging from flat to low single digits. But, sales are expected to start recovering during fiscal fourth quarter.

Starbucks is brewing a turnaround plan to get out of this ‘depresso’ state.

On a brighter note, Starbucks’ most loyal customers have stayed loyal, but occasional coffee drinkers have been coming less often. In response, Starbucks plans to offer them, its non-loyalty members, a version of its app in attempt to lure them to order, along with speedier service, promotions and menu tweaks, such as a the recently introduced revamped version of the blueberry muffin. It is also going after health-conscious consumers with customized zero sugar options that will be arriving soon to its menus. Starbucks is also looking for ways to meet overnight demand, from 5 p.m. to 5 a.m, with lavender drinks being one of its most successful launches. Over the next four years, Starbucks is expecting to achieve supply chain cost savings amounting to $4 billion, while it previously forecasted to save $3 billion.

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