Starbucks Shares Plunge After Sales, Earnings Miss

Starbucks’s chief executive is pledging a turnaround after the coffee giant reported a sharp slowdown in visits and weaker-than-expected sales and profit in the latest quarter.

Shares fell more than 8% in after-hours trading Tuesday.

Chain executives said Tuesday that they are working to speed up service during the morning hours to better meet customer demand, including for orders placed ahead of time on its app.

The company also plans to roll out new beverages and food faster to help coax customers back, particularly in the afternoon. It also wants to better communicate the brand’s value to consumers.

Starbucks’s net income declined 15% in the second quarter compared with last year’s period, while revenue dropped 2%. Increased promotional activity and wages for staff hurt profit, but higher prices and operating efficiencies lessened the blow, the company said.

“In a highly challenged environment, this quarter’s results do not reflect the power of our brand,” CEO Laxman Narasimhan said.

Starbucks has said that its operating challenges would take time to resolve. Inflation remains elevated and a number of U.S. restaurant chains have said that consumers are still adjusting to higher prices for a range of items. In addition, its rivals, including those in China, have stepped up their promotions.

Chinese competitor Luckin Coffee told investors Tuesday that it is also navigating increased competition in its home market, and same-store sales in its operated stores declined during its first quarter.

Starbucks shares were down 23% in the last 12 months through Monday’s close. An S&P 500 restaurant subindex was up around 1% during the same period.

Starbucks reported net income of $772 million for the quarter ended March 31, down from $908 million a year earlier. Earnings per share were 68 cents when adjusting for one-time items. Analysts polled by FactSet expected adjusted earnings of 80 cents a share.

Starbucks reported $8.6 billion in revenue for the most recent quarter, missing analysts’ expectations of $9.1 billion.

Same-store sales declined 4%, trailing analysts’ expectations of a 1% increase. The decline was more steep in China, where same-store sales fell 11%.

Investors are watching restaurant companies’ earnings for clues on consumer sentiment.

McDonald’s said Tuesday that economic pressure is building on consumers, leading to declines in restaurant visits across the industry. The burger chain said the challenges are tougher than previously anticipated.

Chipotle Mexican Grill, Domino’s Pizza and Chili’s owner Brinker International have said in earnings reports in the past week that they have generated growing sales by promoting their value to consumers.

Starbucks earlier this year reduced its full-year forecast for revenue and same-store sales growth, saying sales in January were softer than expected. Lower sales in its Middle East stores also hurt its performance, the company said in January.

It is offering deals in the U.S. to try to lure back customers, and it is hoping to improve its business in China by offering more beverages tailored to the market.

Starbucks and Starbucks Workers United—the union that represents around 410 of its U.S. stores—resumed bargaining negotiations last week for the first time in nearly a year. Representatives from the company and union held two days of talks and began hashing out a framework for union contracts, making significant progress, both sides said. The company and union had previously been at an impasse, resulting in store walkouts.

Write to Heather Haddon at [email protected]