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Starbucks Sales Flatline as US Boycotts and China Cools Off

  • Starbucks fell short of Wall Street forecasts for quarterly profits and revenue.
  • CEO Narasimhan cited "headwinds" like a U.S. boycott and increased Chinese competition, prompting a downward revision of the annual sales projection.
  • Despite an initial dip in shares, a 3% recovery occurred; Q1 adjusted earnings per share were 90 cents, below the expected 93 cents, with revenue at $9.43 billion against an expected $9.59 billion.

Starbucks failed Wall Street's forecasts with its quarterly profits and revenue announcement on Tuesday, as both its domestic and foreign sales fell short of projections.

During the company's conference call, CEO Laxman Narasimhan stated that the chain was facing "headwinds," such as a boycott in the United States and a rise in discounting by Chinese competitors. As a result, the firm reduced its sales projection for the entire year.

Starbucks Sales Flatline as U.S. Boycott and China Cool Off

(Photo : by Kevin Dietsch/Getty Images)
Starbucks failed Wall Street's forecasts with its quarterly profits and revenue announcement on Tuesday, as both its domestic and foreign sales fell short of projections.

Shares initially dipped during after-hours trading but managed to recover, posting an approximate 3% increase. In its fiscal first-quarter report, the company fell short of Wall Street expectations, as per an analyst survey conducted by LSEG (formerly known as Refinitiv). Adjusted earnings per share came in at 90 cents, below the anticipated 93 cents, while revenue amounted to $9.43 billion, slightly missing the expected $9.59 billion.

After a year of $855.2 million, or 74 cents per share, the coffee giant posted a fiscal first-quarter net income of $1.02 billion, or 90 cents per share.

Starbucks made ninety cents per share when restructuring expenses and other factors were taken out.

To $9.43 billion, net sales increased by 8%. Global same-store sales grew by 5%, less than the 7.2% StreetAccount predicted.

Same-store sales increased by 5% in North America as well, mostly as a result of consumers spending more on food and beverages.

But starting in mid-November, according to Narasimhan, U.S. traffic stalled. Citing what he described as "misperceptions" regarding the company's stance on the Israel-Hamas conflict, he said that the majority of the drop in sales was caused by clients who only sometimes visited.

The dispute began when conservatives reacted negatively to a statement made by Starbucks Workers United, the organization that represents hundreds of the chain's unionized outlets, endorsing Palestinians. Starbucks sued Workers United for trademark infringement in an attempt to disassociate itself from the tweet, which the union removed.

Additionally, in a message to employees sent in December, Narasimhan criticized false information and attempted to clear Starbucks of any wrongdoing.

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Starbucks' Fiscal First Quarter Overview and Revised Projections

Starbucks has the support of its most devoted patrons, according to Narasimhan. By targeting them with discounts through its loyalty program and new Valentine's Day beverages, Starbucks hopes to win back more consumers.

Also included in Starbucks' fiscal first quarter is the crucial holiday season. The business typically makes billions of dollars from the sale of gift cards, and its seasonal drink choices and thirsty patrons drive increased foot traffic. According to Narasimhan, customers broke the chain record this quarter by loading $3.6 billion onto gift cards.

Starbucks reported worldwide same-store sales growth of 7%, below estimates of 13.2%, outside of its home market. According to Narasimhan, the conflict also caused a decline in sales at sites in the Middle East.

The firm recorded a 10% increase in same-store sales in China, its second-largest region. At its Chinese locations, the average ticket did, however, decrease by 9%. As per Narasimhan, Chinese customers exhibit a greater degree of caution.

The business is facing more competition from more affordable competitors like Luckin Coffee, who have gained customers despite China's slow economic recovery.

Although the difficulties Starbucks saw this quarter are "transitory," they were significant enough to cause the firm to reassess its forecast for full-year sales. Additionally, Chief Financial Officer Rachel Ruggeri stated that January's revenues were lower than anticipated.

The business has revised its projection for sales growth in fiscal 2024 from 10% to 12% to 7% to 10%. Additionally, Starbucks reduced its prior range of 5% to 7% for its expectation on global same-store sales to a range of 4% to 6%.

The business restated its prediction of 15% to 20% increase in earnings per share for the entire year.

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