Starbucks cuts sales forecast amid slowing demand in key US, China markets
Starbucks | Representational
Starbucks has announced a downward revision of its annual sales forecast following a dip in same-store sales, marking its first decline in nearly three years.
The company's struggles are particularly pronounced in its two largest markets, the US and China.
Investor sentiment took a hit as Starbucks shares fell by 12 per cent during extended trading on Tuesday.
The coffee chain also fell short of quarterly profit estimates, attributing the performance partly to geopolitical uncertainties in West Asia.
CFO Rachel Ruggeri acknowledged the challenges faced by Starbucks in the second quarter, saying that persistent headwinds have necessitated a reassessment of the company's strategies to stimulate demand.
The revised annual sales forecast now anticipates a low single-digit decline to flat comparable sales growth globally and in the US, down from the initial projection of 4 per cent to 6 per cent growth.
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Starbucks CEO Laxman Narasimhan highlighted the impact of adverse weather conditions in the US, along with a sluggish macroeconomic environment, which have dampened sales of premium beverages.
In China, Starbucks experienced an 11 per cent decline in comparable sales, while in the US, the decline stood at 3 per cent.
The coffee chain's second-quarter global comparable sales dropped by 4 per cent, much lower than the 1.44 per cent rise estimated by analysts.
Matthew Goodman, a senior analyst at research firm M Science, said that Starbucks would have to articulate a plan aimed at revitalising traffic trends in the near term.
Data from M Science indicates a further deceleration in sales growth month-over-month, with no signs of recovery in the current quarter.
Operating margin for the reported quarter declined by 240 basis points to 12.8 per cent, attributed to challenges in the labour market and increased union actions.
Despite boosting investments in promotions to stimulate demand, Starbucks fell short of market expectations with a profit of 68 cents per share, excluding items, compared to the anticipated 79 cents per share.
(With inputs from Reuters)