Starbucks Slumped 12% after Cutting Annual Sales Forecast As Demand Cools in Key US, China Markets

Reuters05-01

Starbucks on Tuesday cut its annual sales forecast after reporting a fall in same-store sales for the first time in nearly three years, as it struggles with weak demand for its coffees in the United States and China, its two biggest markets.

Shares of the company slumped 12% on Wednesday in morning trading as the coffee chain also missed estimates for quarterly profit and flagged a hit from geopolitical uncertainties in the Middle East.

Starbucks expects comparable sales growth - both globally and in the U.S. - to be in the range of a low single-digit decline to flat for the full year, down from its previous range of 4% to 6% growth.

The second quarter was "challenging", CFO Rachel Ruggeri said on a post-earnings call.

"...Headwinds consistently persisted throughout the quarter leading us to revamp our actions and response plans to both unlock and attract demand," Ruggeri said.

Western brands such as Starbucks and McDonald's MCD.N are also feeling the impact of a boycott campaign in the Middle East and certain other countries over Israel's military offensive in the Gaza Strip.

In the U.S., Starbucks faced decelerating demand as cold weather in January and a choppy macro environment weighed on sales of its pricier beverages.

The coffee chain's second-quarter global comparable sales fell 4%, compared with a 1.44% rise estimated by analysts, according to LSEG data.

"We still see the effects of a slower-than-expected recovery, and we see fierce competition among value players in the market," CEO Laxman Narasimhan said on a post-earnings call

Comparable sales fell 11% in China and 3% in the United States.

"In the near term we think the company would be well-served to articulate a plan to reinvigorate traffic trends," said Matthew Goodman, senior analyst at research firm M Science.

Data from M Science shows that sales growth decelerated further month-over-month in February and has yet to recover, including in the current quarter.

Operating margin in the reported quarter fell 240 basis points to 12.8% as Starbucks grappled with a tough labor market and increased union actions, while boosting investments in promotions to whip up demand.

Excluding items, the company earned a profit of 68 cents per share, missing market expectations of 79 cents.

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Comments

neo26000
05-01
neo26000
Time to switch to kopi-c or kopi-o
Success88
05-01
Success88
In Singapore, I often see students at Starbucks who buy just one coffee and then sit there for the whole day to study, making it difficult to find a seat when I want to get a coffee myself. In America, I've heard that some panhandlers can even sleep inside Starbucks stores, and it seems there's no law that allows the store to ask them to leave. It's hard to imagine how Starbucks makes money in such situations.