Starbucks shares tumble as coffee giant admits 'disappointing' quarter

Starbucks has lowered its full-year sales and profit expectations following a disappointing second quarter that saw a global slowdown in store visits . The Seattle-based coffee behemoth reported a 2 percent drop in revenue for the January-March period, falling to $8.56 billion, significantly short of Wall Street's predicted $9.12 billion.

This marks the first quarterly revenue decline since the end of 2020. "Our performance this quarter was disappointing and did not meet our expectations," said Starbucks CEO Laxman Narasimhan during an investor conference call.

As a result, Starbucks shares fell by 12 percent in after-hours trading on Tuesday. A combination of factors impacted sales, including a faster-than-expected decline in US consumer confidence and spending, bad weather leading to temporary store closures, and increasing price pressure from competitors in China.

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Starbucks is currently dealing with an ongoing boycott of its stores due to its perceived support of Israel during the Gaza conflict. The boycott began in the autumn when the company sued Workers United, the union organizing its workers, over a pro-Palestinian message posted on a union social media account.

Starbucks has stated that the lawsuit was intended to prevent the union from using the company's name and logo, which it believes confuses customers. Both Starbucks and the union have put the court case on hold and are now in mediation.

However, the company has also taken measures to rectify the situation. Last month, Starbucks donated $3 million to World Central Kitchen to provide food aid in Gaza.

Starbucks reported that its same-store sales, or sales at stores open for at least a year, fell by 4 percent in its fiscal second quarter. This was contrary to Wall Street's expectation of a 1 percent increase, according to analysts polled by FactSet.

In the US, although customers spent more per visit, this wasn't enough to offset a 7 percent decrease in transactions. In China, the company's second-largest market, same-store sales plummeted by 11 percent.

Starbucks has now revised its full-year same-store sales forecast to be flat or fall by single-digit percentages, down from growth of 4 percent to 6 percent. It also expects full-year revenue growth in the low single-digit range, down from 7 percent to 10 percent.

Additionally, it's forecasting flat to low-single-digit earnings growth, down from 15 percent to 20 percent. Narasimhan has revealed that Starbucks is planning to lure in more US customers this summer with the introduction of new beverages, including the brand's first energy drink. Later in the year, the coffee giant plans to roll out sugar-free customization options for most of its drinks.

Following a successful trial, the company is set to offer overnight service in many markets, according to Narasimhan. The firm is also working on improving product availability and service speed after losing some customers due to short supplies of its potato, cheddar, and chive bakes.

In addition, Starbucks plans to open up its Starbucks Rewards app to non-Rewards customers in July, allowing them to benefit from the deals it offers. This move is targeted at occasional customers whose visits to Starbucks have decreased over the last quarter.

"In this environment, many customers are being more exacting about where and how they spend their money," Narasimhan said. "We need to be able to reach and communicate with our customers in a way that demonstrates our value."

Starbucks' net income fell by 15 percent to $772.4 million, or 68 cents per share, falling short of Wall Street's expected profit of 80 cents per share.

Starbucks' sentiments were mirrored earlier on Tuesday by McDonald's, which also reported a decrease in customer traffic in crucial markets such as the US and the UK, as inflation-hit customers dine out less frequently. Similar to Starbucks, McDonald's announced its intention to enhance deals and communication about product value.

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