Starbucks, the well-known coffee behemoth, recently reported its quarterly earnings and revenue, which fell short of Wall Street’s expectations. This underperformance was observed both domestically and internationally, leaving investors and analysts disappointed. The CEO of Starbucks, Laxman Narasimhan, acknowledged the existence of “headwinds” during the company’s conference call, attributing them to a boycott in the U.S. and increased competition in China. As a result, the company had to revise its full-year revenue outlook, leading to concerns among shareholders. Despite an initial decline in extended trading, Starbucks managed to recover, with its shares rising approximately 3%.
The fiscal first-quarter results of Starbucks were presented in comparison to Wall Street’s expectations, based on a survey of analysts by LSEG, formerly known as Refinitiv. The coffee giant reported an adjusted earnings per share of 90 cents, falling short of the expected 93 cents. Similarly, its revenue stood at $9.43 billion, missing the estimated $9.59 billion. While these figures are not catastrophic, they indicate a performance gap between Starbucks and market expectations.
The net income for Starbucks in the fiscal first quarter amounted to $1.02 billion or 90 cents per share, up from the previous year’s $855.2 million or 74 cents per share. This increase in net income can be attributed to factors such as restructuring costs and other items. When excluding these costs, Starbucks earned 90 cents per share. Net sales witnessed an 8% rise, reaching $9.43 billion. Although global same-store sales increased by 5%, falling short of StreetAccount estimates of 7.2%, North America experienced a similar growth rate. The rise in North American same-store sales was primarily driven by increased customer spending on beverages and food. However, CEO Narasimhan highlighted that U.S. traffic lagged, starting in mid-November, and pointed to “misperceptions” about the company’s stance on the Israel-Hamas war as a contributing factor to the decline in sales. It was observed that the decline mainly affected customers who visited Starbucks occasionally. The controversy surrounding a pro-Palestinian tweet from Starbucks Workers United, which the company distanced itself from, might have influenced the decrease in sales. Nonetheless, Starbucks’s most loyal customers remained supportive.
Starbucks aims to regain lost customers by implementing various strategies. One such approach is targeting customers with promotions through its loyalty program, as well as introducing new Valentine’s Day drinks. Since Starbucks’ fiscal first quarter encompasses the crucial holiday season, the company usually witnesses substantial gift card sales and higher footfall due to seasonal drink offerings and holiday shoppers. In this quarter, customers loaded a record-breaking $3.6 billion onto gift cards. However, challenges were encountered outside of Starbucks’ home market. International same-store sales growth fell short, achieving only 7% compared to the anticipated 13.2%. The decline can be attributed to various factors, including the Middle East conflict, which affected sales in that region. In China, which is Starbucks’ second-largest market, same-store sales grew by 10%, although the average ticket at Chinese stores fell by 9%. CEO Narasimhan attributed this decrease to Chinese consumers’ cautious approach, along with increased competition from lower-priced rivals such as Luckin Coffee. Starbucks executives are optimistic that the challenges faced this quarter are only temporary setbacks. However, these obstacles were severe enough for the company to revise its full-year sales outlook.
Chief Financial Officer Rachel Ruggeri noted that sales in January have been softer than expected, indicating ongoing challenges. As a result, Starbucks now anticipates revenue growth of 7% to 10% for fiscal 2024, down from the previous forecast of 10% to 12%. Additionally, the global same-store sales outlook has been lowered to a range of 4% to 6%, compared to the previous range of 5% to 7%. Despite these adjustments, Starbucks reiterates its full-year forecast of earnings per share growth of 15% to 20%, suggesting confidence in its long-term prospects.
The recent quarterly earnings report from Starbucks reflects a mixed bag of results. While the company experienced growth in net income and net sales, it failed to meet Wall Street’s expectations, resulting in concerns among investors. Internal and external challenges, such as controversies surrounding the Israel-Hamas war and increased competition in China, have impacted Starbucks’ performance. However, the company remains confident in its ability to overcome these obstacles and sustain long-term growth. By focusing on strategies like promotions through its loyalty program and appealing seasonal offerings, Starbucks aims to regain lost customers and drive future success.
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