Starbucks Shares Plunge 14% After Cutting Annual Forecasts Amid Weak U.S. and China Demand

Starbucks shares fell nearly 14% in premarket trading on Wednesday after the coffee chain cut its annual forecasts due to persistent feeble demand in the United States from inflation-weary customers and a slower-than-expected recovery in China. The company reported lower-than-expected revenue, earnings, and same-store sales growth for its fiscal second quarter ended March 31, 2024.

Starbucks' global revenue fell 1.8% to $8.56 billion, missing Wall Street's forecast, due to a sharper-than-expected decline in consumer confidence and spending in the U.S. and a choppy post-COVID recovery in China. The company also faced boycotts in the Middle East over its perceived support of Israel. Same-store sales declined 4% globally, with a 7% drop in transactions in the U.S. and an 11% plunge in China.

The coffee giant now expects its full-year comparable sales, both globally and in the U.S., to be in the range of a low single-digit decline to flat, compared to its previous range of 4% to 6% growth. Starbucks also reduced its per-share profit growth target to between flat and low single digits, versus its earlier range of 15% to 20% growth.

Why this matters: The bleak update from Starbucks highlights the challenges faced by consumer-facing businesses amid high inflation and rising interest rates, which have squeezed household budgets and raised concerns of a potential recession. The company's performance in China, one of its key growth markets, also underscores the uneven recovery in the world's second-largest economy.

CEO Laxman Narasimhan acknowledged that the quarter's results did not meet the company's expectations, citing specific challenges and opportunities ahead. "Many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent," he said. To boost U.S. store traffic, Starbucks plans to introduce new drinks, sugar-free customization options, and overnight service in many markets, as well as open its rewards app to non-rewards customers.

Starbucks' underwhelming results offset the positive earnings beat by Amazon, which saw strong performance in its Amazon Web Services business. The broader market also saw declines, with the S&P 500, Nasdaq 100, and Dow Jones Industrial Average futures all down ahead of the Federal Reserve's update

Key Takeaways

• Starbucks shares fell 14% after cutting annual forecasts due to weak US, China demand
• Global revenue fell 1.8% to $8.56B, missing estimates, due to declining consumer confidence
• Same-store sales declined 4% globally, with 7% drop in US and 11% plunge in China
• Starbucks lowered full-year comp sales and profit growth targets amid high inflation, rates
• Challenges faced by consumer firms, uneven China recovery offset Amazon's earnings beat