By Julie Creswell
Throughout the COVID-19 pandemic, various supply chain issues and high inflation, Starbucks could still count on its consumers to buy their iced oat milk lattes. But that economic certainty may be in doubt after the coffee giant reported weaker-than-expected revenue and earnings in the latest quarter.
Starbucks said earlier this week that global revenue fell 1.8%, to $8.56 billion, while net earnings slid 15%, to $772.4 million, in the three months that ended March 31. The company’s executives blamed some of the declines in the U.S. on poor weather and fewer customer visits to its stores.
Starbucks also lowered its revenue and earnings growth for the full year, reflecting the difficulties in the quarter. In after-hours trading, its stock was down more than 12%.
“In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or opportunities ahead,” Laxman Narasimhan, the CEO of Starbucks, said in a statement. “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”
Same-store sales in the quarter fell 3% in North America and 6% in international markets, driven by an 11% decline in China, where Starbucks has placed a big bet on its growth. Executives said the economic recovery in China had been “choppier” than they expected.
Throughout the pandemic and even in the postpandemic world, when many restaurants struggled with supply-chain issues and inflation, Starbucks’ growth seemed unstoppable, driven by its Gen Z customers. Even as traffic at other restaurants fell as food and beverage prices climbed higher and higher, Starbucks customers remained loyal, lining up in stores and at drive-thrus.
Still, Wall Street analysts and investors have been closely monitoring trends inside the chain’s stores, looking for cracks in customer visits or spending that could signal that Starbucks is not immune to a slowdown in consumer spending, particularly by lower-income individuals.
In comments to Wall Street analysts after the market closed, Narasimhan said Starbucks saw that some customers in the United States were being more careful about spending.
“If I look at the headwinds that we see in the market, particularly with the consumer and the pressures that they face, they were sharper and more accelerated than we expected,” he said.
Narasimhan and other executives said they hoped to boost traffic and sales by improving supply chain issues to ensure that hot food and beverages remained available and by using the company’s app to push personalized promotions for customers who visited its stores only occasionally.
Executives attributed the shortfall in China, where Starbucks has more than 7,000 stores and plans to keep expanding, to a decline in traffic by these occasional customers, particularly in the afternoon and evening. Executives also said the market was being shaken out by competitors in China that offered less expensive beverages, but they said Starbucks would continue to focus on wealthier consumers willing to spend on a premium coffee and tea.