Starbucks reports lower-than-expected quarterly revenue amid declining demand

Seattle: Starbucks reported quarterly revenue on Tuesday that fell short of analysts’ expectations due to weaker demand at its U.S. and international cafes. Despite the miss, the results were better than investors feared, leading to a more than 5 percent rise in the company’s shares during extended trading.

U.S. store traffic decreased by 6 percent this quarter, leading to a 2 percent decline in domestic same-store sales, despite a rise in the average ticket price. To revive its lagging U.S. business, Starbucks executives discussed strategies such as discounts and new drinks to attract customers back to the chain.

CEO Laxman Narasimhan noted that more consumers are purchasing Starbucks’ packaged coffee at grocery stores, but a “challenging consumer environment” is impacting cafe sales. However, there are positive signs, such as the success of new products like the Summer-Berry Refreshers drinks with boba-inspired pearls, which set a record for a week-one product launch. The upcoming return of Pumpkin Spice drinks, a long-time favorite, is also anticipated to boost sales.

Starbucks has updated its mobile app to allow customers to order and pay without joining the rewards program and improved the app’s accuracy in predicting order readiness, reducing customer complaints. Former CEO Howard Schultz highlighted the need to enhance the mobile app experience to regain customers.

In international markets, same-store sales fell by 7 percent, with a 14 percent drop in China, Starbucks’ second-largest market, due to decreased average ticket and transactions. The company faces stiff competition in China from local coffee shops offering lower prices. Nonetheless, there are encouraging trends, with average daily transactions and weekly sales in China improving sequentially each quarter.

Narasimhan mentioned that Starbucks is in the early stages of exploring strategic partnerships to accelerate growth in China, though details of these partnerships are yet to be defined.

Starbucks opened 526 net new stores during the fiscal quarter and reiterated its previous outlook, projecting low single-digit percentage revenue growth and flat to low single-digit percentage growth in earnings per share.