Starbucks cuts annual sales forecast as demand cools in key US, China markets

FILE PHOTO: Branded coffee mugs are displayed in Starbucks’ outlet at a market in New Delhi, India, May 30, 2023. REUTERS/Anushree Fadnavis

By Juveria Tabassum

(Reuters) -Starbucks on Tuesday cut its annual sales forecast after reporting a fall in same-store sales for the first time in nearly three years, as it struggles with weak demand for its coffees in the United States and China, its two biggest markets.

Shares of the company slumped 12% on Tuesday in extended trading as the coffee chain also missed estimates for quarterly profit and flagged a hit from geopolitical uncertainties in the Middle East.

Starbucks expects comparable sales growth – both globally and in the U.S. – to be in the range of a low single-digit decline to flat for the full year, down from its previous range of 4% to 6% growth.

The second quarter was “challenging”, CFO Rachel Ruggeri said on a post-earnings call.

“…Headwinds consistently persisted throughout the quarter leading us to revamp our actions and response plans to both unlock and attract demand,” Ruggeri said.

Western brands such as Starbucks and McDonald’s are also feeling the impact of a boycott campaign in the Middle East and certain other countries over Israel’s military offensive in the Gaza Strip.

In the U.S., Starbucks faced decelerating demand as cold weather in January and a choppy macro environment weighed on sales of its pricier beverages.

The coffee chain’s second-quarter global comparable sales fell 4%, compared with a 1.44% rise estimated by analysts, according to LSEG data.

“We still see the effects of a slower-than-expected recovery, and we see fierce competition among value players in the market,” CEO Laxman Narasimhan said on a post-earnings call

Comparable sales fell 11% in China and 3% in the United States.

“In the near term we think the company would be well-served to articulate a plan to reinvigorate traffic trends,” said Matthew Goodman, senior analyst at research firm M Science.

Data from M Science shows that sales growth decelerated further month-over-month in February and has yet to recover, including in the current quarter.

Operating margin in the reported quarter fell 240 basis points to 12.8% as Starbucks grappled with a tough labor market and increased union actions, while boosting investments in promotions to whip up demand.

Excluding items, the company earned a profit of 68 cents per share, missing market expectations of 79 cents.

(Reporting by Juveria Tabassum; Editing by Anil D’Silva)