Starbucks' stock sinks 12% as 'cautious' consumers, more headwinds hit profit, revenue

By Claudia Assis

CEO cites 'disappointing' performance as same-store sales slide worldwide

Starbucks Corp. spooked investors late Tuesday, detailing how a trifecta of fewer people at its stores, cautious consumers and fiercer competition for a morning joe hit its quarterly revenue, and sank the stock about 12% in the after-hours session.

The company also lowered its guidance for the year, calling for global revenue growth in the low single digits, compared with a previous expectation of growth between 7% and 10%, and a deep cut in per-share profit growth expectations, to between flat and low single digits, from expectations of 15% to 20%. Pressure should ease by the end of the year, the executives said.

"Let me be clear from the beginning, our performance this quarter was disappointing and did not meet our expectations," Chief Executive Laxman Narasimhan said on a call with analysts after the results were released.

"A deteriorating economic outlook" in several markets has weighed on customer traffic and the impact is felt broadly across the industry, the CEO said.

The company reported sliding comparable-store sales across the globe, only in part offset by higher tickets.

In key markets, including the U.S., declining foot traffic is a problem, as consumers - particularly the occasional customer- continue to be "cautious," Narasimhan said.

China's economic recovery has been slower than expected, hampering the business there, and there's also "fierce competition" from cheaper offerings in that country, he said.

Starbucks also continues to see economic volatility in the Middle East, Narasimhan said.

He said the company will focus on what's "within our control," tweaking execution, launching new products and demonstrating more value for its customers, both occasional and hard-core. The company will also upgrade its app and open up the app and mobile orders in July.

Starbucks (SBUX) earned $772 million, or 68 cents a share, in the fiscal second quarter, compared with $908 million, or 79 cents a share, in the year-ago period. Adjusted earnings were also 68 cents a share.

Revenue dropped 2% to $8.6 billion.

Analysts polled by FactSet had expected the retailer to report adjusted earnings of 80 cents a share on sales of $9.12 billion.

Operating income was down to $1.1 billion, and operating margin contracted to 18%, from 19.1%, with the company citing deleverage, investments in wages and benefits, and more discounts offered.

That contraction was offset in part by higher prices and and in-store operational efficiencies, the company said.

Starbucks said its global comparable-store sales fell 4%, due to a 6% decline in comparable transactions, which was partially offset by a 2% increase in the average ticket.

In the U.S. and North America, same-store sales fell 3% on a 7% decline in comparable transactions, offset in part by a 4% increase in average ticket.

International same-store sales declined 6%, with both comparable transactions and average ticket declining 3%.

In China specifically, same-store sales fell 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions, Starbucks said.

Shares of Starbucks have dropped 7.5% so far this year, contrasting with gains of about 6% for the S&P 500 index SPX.

-Claudia Assis

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04-30-24 2010ET

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