Starbucks' international sales lag, leading to disappointing earnings

Coffee giant Starbucks reported quarterly earnings and revenue that fell short of Wall Street's expectations, with both domestic and international sales missing estimates. CEO Laxman Narasimhan cited "headwinds" such as a boycott in the U.S. and increased discounting by rivals in China. As a result, the company lowered its full-year revenue outlook. However, shares initially fell in extended trading but later recovered, rising about 3%.

In its fiscal first quarter, Starbucks reported net income of $1.02 billion, or 90 cents per share, up from $855.2 million, or 74 cents per share, a year earlier. Excluding restructuring costs and other items, the company earned 90 cents per share. Net sales rose 8% to $9.43 billion, with global same-store sales increasing by 5%, falling short of estimates.

While same-store sales in North America rose 5%, CEO Narasimhan noted that U.S. traffic started lagging in mid-November. He attributed the decline in sales to "misperceptions" about the company's stance on the Israel-Hamas conflict, and said the decrease largely came from occasional customers. Starbucks Workers United, which represents unionized cafes, had posted in support of Palestinians, leading to backlash from conservatives. Starbucks distanced itself from the tweet and sued Workers United for trademark infringement, while Narasimhan wrote a letter to workers condemning misinformation.

The coffee chain's most loyal customers have remained supportive, and Starbucks aims to win back other customers through promotions and new Valentine's Day drinks. However, international same-store sales growth fell short of expectations, particularly in the Middle East due to the war. In China, the company's second-largest market, same-store sales grew by 10%, but the average ticket at Chinese stores fell 9%. Narasimhan attributed this to Chinese consumers being more cautious and increased competition from lower-priced rivals like Luckin Coffee.

Starbucks executives characterized the challenges faced this quarter as "transitory," but significant enough to revise the company's full-year sales outlook. Starbucks now expects revenue growth of 7% to 10% for fiscal 2024, down from its previous forecast of 10% to 12%. The global same-store sales outlook was also lowered to a range of 4% to 6% from 5% to 7%. However, the company maintained its full-year forecast of 15% to 20% earnings per share growth.


More from Press Rundown