MILAN – Starbucks stocks dropped the most intraday in nearly a decade yesterday after the company reported the first sales decline since late 2020 and cut guidance for a third straight quarter. The coffee giant released late Tuesday quarterly earnings and revenue that came up short of Wall Street expectations amid an unexpected drop in both U.S. and international same store sales.
For its second quarter earnings, the company missed expectations, posting lower-than-expected revenue, earnings, and same-store sales growth.
Global same-store sales declined 4% from a year ago as transactions dropped 6%, which was partially offset by a 2% increase in average ticket size.
Fiscal second-quarter adjusted earnings were of 68 cents per share, whereas analysts had called for 79 cents a share. Net sales in the period fell 2% to $8.56 billion from a year earlier and came in below the $9.13 billion Street estimate.
In North America, same-store sales and transactions declined by 3% and 7%, respectively.
Starbucks: Q2 Fiscal 2024 Highlights
- Global comparable store sales declined 4%, driven by a 6% decline in comparable transactions, partially offset by a 2% increase in average ticket
- North America and U.S. comparable store sales declined 3%, driven by a 7% decline in comparable transactions, partially offset by a 4% increase in average ticket
- International comparable store sales declined 6%, driven by a 3% decline in both comparable transactions and average ticket; China comparable store sales declined 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions
- The company opened 364 net new stores in Q2, ending the period with 38,951 stores: 52% company-operated and 48% licensed
- At the end of Q2, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 16,600 and 7,093 stores in the U.S. and China, respectively
- Consolidated net revenues declined 2%, to $8.6 billion, or a 1% decline on a constant currency basis
- GAAP operating margin contracted 240 basis points year-over-year to 12.8%, primarily driven by deleverage, incremental investments in store partner wages and benefits, increased promotional activities, lapping the gain on the sale of Seattle’s Best Coffee brand, as well as higher general and administrative costs primarily in support of Reinvention. This decline was partially offset by pricing and in-store operational efficiencies.
- Non-GAAP operating margin contracted 150 basis points year-over-year to 12.8%, or contracted 140 basis points on a constant currency basis
- GAAP earnings per share of $0.68 declined 14% over prior year
- Non-GAAP earnings per share of $0.68 declined 8% over prior year, or declined 7% on a constant currency basis
- Starbucks Rewards loyalty program 90-day active members in the U.S. totaled 32.8 million, up 6% year-over-year
“In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead,” commented Laxman Narasimhan, chief executive officer. “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us. We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand,” Narasimhan added.
“While it was a difficult quarter, we learned from our own underperformance and sharpened our focus with a comprehensive roadmap of well thought out actions making the path forward clear,” commented Rachel Ruggeri, chief financial officer. “On this path, we remain committed to our disciplined approach to capital allocation as we navigate this complex and dynamic environment,” Ruggeri added.
Q2 North America Segment Results
Net revenues for the North America segment of $6.4 billion in Q2 FY24 were flat to Q2 FY23, primarily driven by a 3% decline in comparable store sales, driven by a 7% decline in comparable transactions, partially offset by a 4% increase in average ticket. This decline was offset by net new company-operated store growth of 5% over the past 12 months, as well as growth in our licensed store business.
Operating income decreased to $1.1 billion in Q2 FY24 compared to $1.2 billion in Q2 FY23. Operating margin of 18.0% contracted from 19.1% in the prior year, primarily driven by deleverage, incremental investments in store partner wages and benefits, and increased promotional activity. This contraction was partially offset by pricing and in-store operational efficiencies.
Q2 International Segment Results
Net revenues for the International segment declined 5% over Q2 FY23 to $1.8 billion in Q2 FY24, primarily driven by an approximate 5% unfavorable impact from foreign currency translation and a 6% decline in comparable store sales, driven by a 3% decline in both comparable transactions and average ticket. Also contributing were lower product and equipment sales to, and royalty revenues from, our licensees. This decline was partially offset by net new company-operated store growth of 12% over the past 12 months.
Operating income decreased to $233.8 million in Q2 FY24 compared to $314.7 million in Q2 FY23. Operating margin of 13.3% contracted from 17.0% in the prior year, primarily driven by promotional activities, incremental investments in store partner wages and benefits, as well as sales mix shift, partially offset by pricing in certain markets.
Q2 Channel Development Segment Results
Net revenues for the Channel Development segment declined 13% over Q2 FY23 to $418.2 million in Q2 FY24, primarily due to a decline in revenue in the Global Coffee Alliance, following the sale of Seattle’s Best Coffee brand in the prior year and SKU optimization.
Operating income decreased to $216.3 million in Q2 FY24 compared to $262.1 million in Q2 FY23. Operating margin of 51.7% contracted from 54.5% in the prior year, primarily due to lapping the gain on the sale of Seattle’s Best Coffee brand, partially offset by growth in our North American Coffee Partnership joint venture income, sales mix shift, and lapping impairment charges against certain manufacturing assets.
Starbucks: Fiscal 2024 Financial Targets
The company will discuss fiscal year 2024 financial targets during its Q2 FY24 earnings conference call starting today at 2:00 p.m. Pacific Time. These items can be accessed on the company’s Investor Relations website during and after the call. The company uses its website as a tool to disclose important information about the company and comply with its disclosure obligations under Regulation Fair Disclosure.
Revenue and EPS Guidance
Looking ahead, Starbucks trimmed its 2024 revenue growth guidance to the low single digits, down from its earlier forecast of 7% to 10%. It sees global and U.S. same-store sales growth ranging from low single digits to flat, below its prior projection of 4% to 6%.
Turning to China, Starbucks, anticipates same-store sales to decline by single digits compared to its previous outlook of a single-digit increase. On the earnings front, the company guided full-year bottom-line growth of flat to low single digits, down from its prior earnings growth forecast of 15% to 20%.23.
