Glass art by Starbucks at a branch in Tokyo.
Jakub Porzycki | Only photo |
Starbucks reported quarterly sales on Tuesday that fell short of analysts' expectations as its cafes in the U.S. and internationally struggled with weaker demand.
Still, the results were not as bad as investors feared, with the company's shares rising more than 5 percent in extended trading.
Here's what the company reported compared to Wall Street expectations, based on an LSEG analyst survey:
- Earnings per share: 93 cents adjusted vs. 93 cents expected
- Revenue: $9.11 billion versus expected $9.24 billion
The coffee giant reported net income attributable to the company of $1.05 billion, or 93 cents per share, for the third fiscal quarter, down from $1.14 billion, or 99 cents per share, a year earlier.
Excluding special items, Starbucks earned 93 cents per share.
Net sales dropped 1% to $9.11 billion. The company's like-for-like sales decreased 3% in the quarter, reflecting a 5% decline in transactions.
Customer traffic at U.S. stores fell again this quarter, down 6 percent. Sales at domestic stores fell 2 percent, driven by an increase in average sales. Last quarter, executives discussed plans to revive the flagging U.S. business, which included using discounts and new beverages to win back customers who had left the chain.
CEO Laxman Narasimhan said Tuesday that more customers were buying the company's packaged coffee at grocery stores, but that a “difficult consumer environment” was impacting sales at its cafes.
Nevertheless, the company is already seeing initial signs in its US business, such as the success of new products. Its “Summer-Berry Refreshers” drinks with boba-inspired pearls broke the company’s record for a first-week product launch. The next quarter will also see the return of Pumpkin Spice drinks, which have been a perennial favorite since their launch more than two decades ago.
The company now allows customers to order and pay through its mobile app without having to participate in its rewards program. Improvements to the app also mean it can more accurately predict when an order will be ready, leading to fewer customer complaints. In a letter posted on LinkedIn after last quarter's dismal report, former CEO Howard Schultz said the company needed to improve the mobile app experience to win back customers.
Schultz is not the only investor to be upset about Starbucks' performance recently. Activist hedge fund Elliott Management has acquired a stake in Starbucks. Narasimhan confirmed that the company is a shareholder in Starbucks and said talks have been constructive so far.
Outside North America, comparable-store sales fell 7 percent. In China, Starbucks' second-largest market, comparable-store sales fell 14 percent as both average amounts and transactions declined.
Starbucks is facing increased competition in China from local coffee shops that are undercutting the coffee giant on price. But there are also encouraging signs in the country. According to Narasimhan, average daily transactions and weekly sales in China have improved compared to the previous quarter.
The company is in the “early stages” of seeking strategic partnerships to accelerate its growth in China, Narasimhan said. What form that partnership might take is still unclear.
Starbucks opened a net 526 new stores during the fiscal quarter.
The company reiterated its outlook from last quarter. It expects revenue growth in the low single-digit percentage range and earnings per share growth in the range of flat to low single-digit percentage range.
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