Starbucks shares plunge 16% as chain warns on 2024 profits, cites ‘higher inflation’ as ‘risk factor’
Java giant Starbucks is starting to feel the financial pinch as inflation-battered caffeine junkies turn away from drinks like their vente triple-soy lattes to lower priced options.
Starbucks CEO Laxman Narasimhan pointed to inflation pressures faced by customers as a factor in the company’s lackluster quarterly earnings report.
“In this environment, many customers have been more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent,” Narasimhan said on the company’s Tuesday call.
On Wednesday, shares in the Seattle-based chain plunged 16% Wednesday after Narasimhan warned that its cafes will continue to underperform in 2024.
For the three-month period ended March 31, Starbucks said that same-store sales in the US decreased 3% as foot traffic plunged a disappointing 7%, marking the second consecutive quarter that the coffee chain’s home market has struggled.
“In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead,” Narasimhan said.
Starbucks also cited “higher inflation” as a “risk factor” moving forward, which comes after news that Vietnam’s robusta coffee bean farmers are facing a supply crunch caused by the El Niño weather phenomenon that’s pushed temperatures higher — causing weaker harvests and increasing the cost of coffee beans.
Net revenues in North America rang in at $6.4 billion for the quarter, Starbucks reported Wednesday — flat compared to the year-ago period thanks to a 4% increase in the average amount a customer spends per transaction.
Globally, Starbucks’ same-store sales fell 4% as traffic similarly dipped 6%. Wall Street was anticipating same-store sales growth of 1%, per CNBC, citing StreetAccount estimates.
Revenue rang in at $8.56 billion in the quarter — falling short of the $9.13 billion sum that was expected.
“It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us,” Narasimhan said after the second-quarter earnings results, which expanded upon the losses in the first three months of this year, when Starbucks blamed weak sales on boycotts targeting the company due to a “misrepsentation” of its stance on Israel.
Because of those challenges, along with “low consumer confidence, high unemployment” and “burdensome government debt,” among other risk factors, Starbucks said that for the rest of its fiscal 2024, revenue growth will hover around the low single digits — down from its previous forecast of 7% to 10%.
The company has also revised its projections for both global and US same-store sales growth from a range of low single digits to flat from its previous forecasts of 4% to 6%, CNBC earlier reported.
In addition, same-store sales in China are expected to decline by single digits, down from the prior outlook of a single-digit increase.
Prior to Tuesday’s report, earnings per share growth was anticipated to reach as high as 20% in fiscal 2024, though that’s now been slashed in a range of flat to low single digits.
Starbucks said it anticipates that its sales won’t be back on the up and up until the fiscal fourth quarter. Results for the period will be reported on Oct. 30, 2024.
