Starbucks stock plunges 14% after badly missing its Q2 earnings estimates

The glass is looking half empty for Starbucks (SBUX) this quarter.

For its second quarter earnings, the company missed expectations across the board, posting lower-than-expected revenue, earnings, and same-store sales growth, as customers pulled back on the frequency of their visits and the size of their orders.

Its shares opened 14% lower on Wednesday; it reported results after market close on Tuesday.

CEO Laxman Narasimhan called it a "a highly challenged environment."

During the earnings call, he added that macro headwinds, "particularly around the pressures that consumers face, particularly with the occasional customer, ... that's where the challenge is."

This is Starbucks' first quarterly sales decline since 2020, when COVID shutdowns roiled the industry.

Revenue for the second quarter dropped 2% year over year to $8.6 billion. Adjusted earnings per share also came in lower, down 8% to $0.68.

Global same-store sales declined 4% from a year ago as transactions dropped 6%, which was partially offset by a 2% increase in average ticket size.

Starbucks attempted to lure in customers with afternoon promotions and new offerings like lavender lattes, which Narasimhan said "performed nearly as well this past quarter as the PSL [pumpkin spice latte]."

However, menu innovations didn't appear to move the needle for the coffee giant.

In its North America and US business, same-store sales declined 3%, with foot traffic dropping 7% year over year, though ticket size was up 4%.

To attract the occasional customers, Starbucks plans to add new promotions to its app. In the US, 31% of all Q2 transactions came through its app. However, the number of 90-day active loyalty members declined to 32.8 million, compared to 34.3 million last quarter.

Narasimhan also called out the speed of service as an area of opportunity. Currently, many customers don't complete their app orders due to long wait times or lack of product availability. The company is "ramping up supply chain investments to further improve availability," he said.

New products, such as boba tea-like pearls, zero to low-calorie energy drinks, and more sugar-free syrups, are also on tap.

For its international business, same-store sales were down 6%, with a 3% decline in foot traffic and ticket size. Similar to McDonald's (MCD), Starbucks said the conflict in the Middle East weighed on international sales.

Narasimhan shared his concerns about current events and misinformation being spread about the company in an internal memo in mid-December.

But China saw the biggest drop, with same-store sales down 11%, foot traffic down 8%, and the average ticket size down 4%.

"Performance was impacted by a decline in occasional customers, changing holiday patterns, a high promotional environment, and a normalization of customer behaviors following last year's market reopening," Narasimhan said on the call.

Stores in the US and China make up 61% of the company portfolio.

The company also revised its 2024 outlook for the third time this fiscal year.

As of Q2, Starbucks expects 2024 global revenue growth of low-single digits, down from the previous range of 7% to 10%, which itself was down from a prior guidance of 10% to 12%.

Global and US same-store sales are expected to see a low single-digit decline or stay flat, down from the previous range of 4% to 6% growth. China's same-store sales are expected to see a single-digit decline, down from the previously expected low-single-digit growth.

Starbucks originally expected same-store growth in the mid-single digits across its markets.

Here's what Starbucks reported, compared to Wall Street estimates, per Bloomberg consensus estimates:

• Adjusted earnings per share: $0.68 versus $0.80

• Revenue: $8.56 billion versus $9.13 billion

• Same-store sales growth: -4% versus 1.46%

  • North America: -3% versus 2.05%

  • US: -3% versus 2.31%

  • International: -6% versus 1.36%

  • China: -11% versus -1.62%

• Foot traffic growth: -6% versus -0.27%

  • North America: -7%, compared to up 6% in Q2 2023

  • International: -3%, compared to up 7% in Q2 2023

• Ticket size growth: 2% versus 2.41%

  • North America: 4%, compared to up 5% in Q2 2023

  • International: -3%, compared to flat in Q2 2023

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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