Starbucks’ stock tumbled more than 9% on Wednesday after the company reported second-quarter results that missed expectations across the board. CEO Brian Niccol called the numbers “disappointing,” as the company logged its fifth straight quarter of declining U.S. same-store sales.
Sales at U.S. stores open at least a year fell 2%, far worse than the 0.3% drop analysts expected. Analysts say the decline highlights the brand’s growing struggle to retain customers who are increasingly seeking lower-cost alternatives at competitors like Dunkin’ and McDonald’s, according to Yahoo!Finance.
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Fewer visits, bigger purchases not enough
A troubling 4% drop in customer transactions drove the concerning US sales decline, though this was partially offset by a 3% increase in the average check size. The pattern suggests fewer people are visiting Starbucks locations, but those who do are spending more per visit, not enough to compensate for reduced foot traffic.
Financial challenges extended beyond shrinking store traffic. Starbucks reported:
- Adjusted earnings per share of $0.41, well below Wall Street’s expectation of $0.49
- Revenue of $8.76 billion, missing the projected $8.83 billion
- Quarterly profit plummeting more than 50% year-over-year to $384 million
- Adjusted operating margin of 8.2%, significantly below the anticipated 9.5%
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China stabilizes amid broader concerns
China offered a potential bright spot after four consecutive quarters of declining comparable sales. Chinese same-store sales were flat – outperforming analysts’ projected 2% decline. Customer traffic actually increased by 4% in China, though this was offset by customers spending 4% less per transaction.
Niccol emphasized the company’s long-term commitment to China, according to reporting by Yahoo Finance, noting the market’s potential for future growth and highlighting ongoing efforts in product innovation and marketing.
The CEO pointed to “momentum” building in the Chinese market through “product innovation” and “additional marketing” efforts.
One of the few bright spots in the report came from China, where same-store sales stabilized after four quarters of declines. While overall sales were flat, customer visits rose 4%, offset by a 4% drop in average spend per transaction.
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Niccol’s turnaround faces early headwinds
Niccol, who joined Starbucks from Chipotle last fall with a substantial compensation package, acknowledged the disappointing results but, according to Yahoo Finance, expressed confidence in his “Back to Starbucks” strategy, citing internal progress and growing momentum.
The CEO’s turnaround strategy includes streamlining service, cutting back the menu to focus on core coffee products, and regaining market share in China. However, these latest results suggest significant challenges ahead, including potential headwinds from US-China trade tensions. Approximately 19% of Starbucks stores are located in China.
The company has also faced internal challenges, laying off over 1,000 employees in February and reversing its open-door policy for non-customers. Meanwhile, Starbucks continues to navigate ongoing negotiations with unionized workers, who recently rejected the company’s latest contract offer.
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