Shares of Starbucks (SBUX) plunged more than 9% Wednesday morning, continuing a troubling trend for the coffee chain as its latest earnings report fell short of Wall Street expectations.
The drop marks a 7.55% single-day loss, pushing the stock down nearly 4% over the past year — a sharp contrast to the S&P 500's 8.7% gain.
The earnings report for Starbucks’ fiscal second quarter paints a sobering picture. Comparable store sales in the U.S. — a crucial barometer of retail health — declined 2%, the fifth straight quarterly fall and significantly worse than analysts’ consensus estimate of a 0.3% dip. The decline was driven by a 4% drop in customer transactions, though that was partially offset by a 3% increase in average spend per order.
Overall, global comparable sales were down 1%, with revenue reaching $8.76 billion, narrowly missing expectations. Profit fell over 50% year-over-year to $384 million. Adjusted earnings per share landed at $0.41, falling short of the $0.49 forecast. Margins, a critical metric for profitability, shrank for the fifth consecutive quarter — with adjusted operating margin coming in at 8.2%, below the 9.5% anticipated.
China Growth Flatlines, Global Headwinds Persist
Once a crown jewel of Starbucks' international expansion, China is proving to be an increasingly complex challenge. Comparable store sales in the region were flat — slightly better than the feared 2% drop but still a signal of stagnation. Transactions were up 4%, yet average spend per customer fell an equal amount.
In total, Starbucks now operates 7,758 stores in China, the company’s second-largest market. Still, intensifying local competition, economic uncertainty, and growing anti-American sentiment amid geopolitical tensions are weighing heavily on consumer behavior. While international revenues rose 6% to $1.9 billion, boosted by store expansion and acquisitions, profitability faltered. The segment’s operating income fell due to higher promotional costs and restructuring charges.
The broader consumer slowdown, especially in discretionary categories, is not isolated to Asia. North American same-store sales fell 1%, dragged down by soft foot traffic in U.S. locations. Though Starbucks opened 213 new stores in the quarter, the expansion has yet to offset weakening customer demand.
Labor Over Tech: A Strategic Pivot
CEO Brian Niccol, who took over the helm last September after a high-profile move from Chipotle, has doubled down on what he calls the "Back to Starbucks" plan — a strategy centered around reviving in-store experiences, improving service speed, and re-engaging employees.
One major pivot under Niccol's leadership: pulling back from Starbucks’ previous emphasis on automation. The Siren system — a tech and equipment initiative launched in 2022 to streamline operations — will now only be installed in a limited number of high-volume stores. Instead, Starbucks is shifting investment toward increased staffing, with plans to boost headcount at up to 3,000 U.S. stores by year’s end.
“We’re banking on some growth to come with the investment in the labor and the store experience,” Niccol said on the company’s earnings call. He acknowledged the added costs but argued that quality human interaction, not machines, will restore the brand’s edge.
Despite the underwhelming quarter, Niccol remains publicly confident. “My optimism has turned into confidence,” he told investors. “There’s real momentum behind the scenes.”
Store Closures, Renovations, and the Road Ahead
As part of the broader turnaround, Starbucks is reviewing its store base — an initiative that could lead to closures or renovations of underperforming locations. The goal, according to Niccol, is to reimagine the “Starbucks of the future” as a vibrant, community-oriented coffeehouse — a “third place” where customers feel both connection and comfort.
But for now, the numbers tell a more difficult story. Profit is under pressure, sales are sliding, and the turnaround timeline remains uncertain. Investors, increasingly impatient, are looking for concrete signs that Starbucks can reverse its decline.
Until then, the stock may continue to cool — even as the coffee stays hot.
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