Starbucks (SBUX) stock dropped 5.7% Wednesday after the coffee giant’s second quarter earnings report disappointed Wall Street and cast a shadow over its CEO’s plan to turn around the company.
US comparable store sales — a closely watched metric that includes results from stores open for more than a year — fell for the fifth consecutive quarter, sinking 2% as consumers sought cheaper alternatives at rivals such as Dunkin’ and McDonald’s (MCD). Wall Street analysts had expected a more modest 0.3% decline in the results on Tuesday.
Starbucks’ slumping store sales are a result of fewer customers visiting its stores to buy drinks, though those who still frequent its shops are spending more money. Transactions fell 4% from the prior year, while the average ticket size, or dollar amount spent in each transaction, rose 3% in the US.
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Investors have also been focused on the company’s results in China after four consecutive quarters of comparable sales declines as competition heats up in the country.
In China, more customers visited Starbucks, but they spent less money. Comparable sales in China were flat in Starbucks’ fiscal second quarter as a 4% increase in transactions was offset by a 4% decline in ticket size. Analysts had expected same-store China sales to decline by more than 2%.
Other key stats disappointed too. The coffee chain reported adjusted earnings per share of $0.41 for the quarter ending March 30, less than the $0.49 expected from Wall Street analysts, according to Bloomberg data. Its revenue of $8.76 billion fell short of the projected $8.83 billion.
Over the past year, Starbucks stock dropped about 9.5% compared to the S&P 500’s 10.6% rise.
The company reported an adjusted operating margin — the percentage of revenue left over after operating expenses — of 8.2%, below the 9.5% expected by analysts, per Bloomberg.
The coffee chain’s profit dropped more than 50% from the prior year to $384 million in the March period.
Starbucks CEO Brian Niccol acknowledged the downbeat results, saying, “Our Q2 results are disappointing,” but he added that “behind the scenes, we made a lot of progress and have real momentum with our ‘Back to Starbucks’ plan.”
“My optimism has turned into confidence that our Back to Starbucks plan is the right strategy to turn the business around and to unlock opportunities ahead,” he said.
After joining the company from Chipotle (CMG) last fall with a hefty pay package and controversial benefits, Niccol set into motion a Starbucks turnaround plan given the coffee giant has floundered in recent years, both in the US and abroad.
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