Starbucks's CEO is determined to steer the company towards a positive trajectory following a notable decline in customer visits, along with weaker-than-anticipated sales and profits in the most recent quarter, resulting in an over 8% drop in shares during after-hours trading on Tuesday.
The chain's executives unveiled strategies to enhance service efficiency during morning hours, particularly for orders placed in advance on its app, and to accelerate the introduction of new beverages and food items to entice customers, especially in the afternoon. Additionally, they aim to improve the communication of the brand’s value proposition to consumers.
In the second quarter, Starbucks observed a 15% decrease in net income compared to the same period last year, alongside a 2% decline in revenue. While increased promotional activities and higher staff wages impacted profits, the company managed to partly offset these effects through higher prices and operational efficiencies.
Despite the challenging environment, CEO Laxman Narasimhan expressed confidence in the underlying strength of the brand. Starbucks acknowledged that resolving its operational challenges will require time, especially in the face of ongoing inflation and consumer adaptation to higher prices across the industry, as well as increased competition in China.
Starbucks reported a net income of $772 million for the quarter ending March 31, down from $908 million a year earlier, with adjusted earnings per share at 68 cents, falling short of analysts' expectations of 80 cents per share. Revenue for the quarter was $8.6 billion, missing analysts' estimates of $9.1 billion.
The company experienced a 4% decline in same-store sales, with a more significant 11% decline in China. Over the past 12 months, Starbucks shares have declined by 23%, while an S&P 500 restaurant subindex has risen by about 1% over the same period.
Earlier, Starbucks had revised its full-year revenue and same-store sales growth forecast downwards due to softer-than-expected sales in January, compounded by lower sales in the Middle East. The company is implementing promotional offers in the U.S. to lure back customers and is focusing on tailoring its beverage offerings to the Chinese market to enhance performance there.
In other developments, Starbucks and Starbucks Workers United, the union representing approximately 410 of its U.S. stores, recently resumed bargaining negotiations after nearly a year. Both parties reported significant progress in two days of talks to establish a framework for union contracts, following an earlier impasse that resulted in store walkouts.