Javanese giant Starbucks is starting to feel the pinch as inflation-battered caffeine addicts turn to lower-priced drinks like Bento Triple Soy Lattes.
Starbucks CEO Laxman Narasimhan cited inflationary pressures faced by customers as a factor in the company’s lackluster quarterly results.
“Many customers are becoming more demanding in this environment. Especially when it comes to choosing where and how they spend their money, especially when most of their stimulus savings have been spent,” Narasimhan said on the company’s call Tuesday.
Shares of the Seattle-based chain fell 16% on Wednesday after Narasimhan warned that the company’s cafes would continue to underperform in 2024.
Starbucks announced a disappointing 3% decline in U.S. same-store sales and a 7% decline in foot traffic for the three months ended March 31, with the coffee chain’s home market declining by 2.5% in the second quarter. It showed that he was struggling continuously.
“In a very challenging environment, this quarter’s results do not reflect the strength of our brand, our capabilities or the opportunities that lie ahead,” Narasimhan said.
Starbucks also cited “rising inflation” as a “risk factor” going forward, as Robusta coffee bean farmers in Vietnam are facing supply shortages due to rising temperatures caused by the El Niño phenomenon, resulting in lower yields and higher costs. This comes in response to the news that it is causing a rise in of coffee beans.
Starbucks reported Wednesday that its North American net revenue for the quarter was $6.4 billion, flat compared to the same period last year as the average amount customers spent per transaction increased by 4%.
Globally, Starbucks’ same-store sales fell 4% and customer traffic similarly fell 6%. Wall Street had expected same-store sales to rise 1%, according to CNBC, citing estimates from Street Accounts.
Revenue for the quarter was just $8.56 billion, falling short of the $9.13 billion expected.
“While we did not meet expectations, we understand the specific challenges and opportunities ahead of us,” Narasimhan said after the second-quarter results, which further widened losses in the first three months of the year. “I am doing so,” he said. Sales declined due to a boycott targeting the company due to a “misunderstanding” of its stance on Israel.
Starbucks said these challenges, along with “low consumer confidence, high unemployment,” and “burdensome government debt,” among other risk factors, will reduce revenue growth for the remainder of fiscal year 2024. He said it will remain in the low single digits. Previous expectations were for 7% to 10%.
The company also revised its global and U.S. same-store sales growth outlook to flat from the low-single-digit range, down from previously expected 4% to 6%, CNBC earlier reported.
Furthermore, same-store sales in China are expected to decline by a single digit, a downward revision from the previous forecast of a single-digit increase.
Prior to Tuesday’s report, earnings per share growth in fiscal 2024 was expected to reach as much as 20%, but that has now been reduced to a flat to low single-digit range.
Starbucks said it expects sales to pick up again in the fourth quarter of its fiscal year. Results for this period will be reported on October 30, 2024.
