Starbucks shares slide 16% as sales go cold

Chief financial officer Rachel Ruggeri said the quarterly results were hurt by colder-than-usual weather in January that affected store visits across the industry, a more cautious consumer around the world and the Gaza conflict

Starbucks wants to boost product availability and cut wait times, including by updating how it makes some drinks.

Starbucks shares tumbled by as much as 16% on Wednesday a day after revealing its sales fell for the first time since 2020 as half-off deals and new lavender lattes weren’t enough to entice increasingly budget-conscious consumers across the world.

The shares tumble was the most since the early days of the pandemic in March 2020. “Starbucks reported what’s perhaps the worst set of results of any large company so far” this quarter, said Adam Crisafulli, an analyst with Vital Knowledge, in a research note. 

Broker William Blair downgraded its stock recommendation citing the coffee chain’s “stunning across-the-board miss on all key metrics”. On a call with investors, the company cut its full-year revenue growth forecast to low single-digits and signaled adjusted earnings per share may be flat. 

Starbucks has struggled to keep up with lofty expectations set by previous management. Chief executive Laxman Narasimhan, who has been on the job a little more than a year, has already lowered guidance several times. 

But the latest results underscore the challenge of selling $6 lattes to consumers grappling with persistent inflation. The company reported a 4% decline in same-store sales in the latest quarter, while analysts expected growth. 

In China, same-store sales fell 11%. The pullback by consumers was widespread, with the overall number of transactions sinking 6% and retreating in each of the company’s geographic segments. Consolidated net revenue fell, while earnings per share excluding some items also underperformed expectations.

Chief financial officer Rachel Ruggeri said the quarterly results were hurt by colder-than-usual weather in January that affected store visits across the industry, a more cautious consumer around the world and the conflict in the Middle East.

“We were not pleased with the performance this quarter,” Ms Ruggeri said. “We really sharpened our focus, and we have a very clear path going forward,” she said. The chain is looking to reverse the slump by focusing on fulfilling demand in the mornings, Mr Ruggeri said. 

Starbucks wants to boost product availability and cut wait times, including by updating how it makes some drinks. It’s working on new products to attract customers in the afternoons and launching a boba-like drink this summer.

Starbucks is also aiming to get more customers to try its app in hopes they’ll sign up for the loyalty program. Rewards members visit more often, according to executives.

This was a notable miss with no easy fix in sight, said Andy Barish, an equity analyst at Jefferies. “Question facing the company and investors is whether these challenges are more transitory or longer-term issues regarding brand, relevance and competitiveness, especially in China,” he said. 

Bloomberg