Starbucks (SBUX) shares fell 6.6% at noon Wednesday after the coffee giant's second-quarter earnings report disappointed Wall Street and gave a shadow over its CEO's plan to reverse the company.
Comparable store sales in the U.S. are a closely watched metric that includes results for more than a year of stores – a fifth consecutive quarter that has declined, down 2% as consumers seek cheaper alternatives at competitors such as Duncan and McDonald's (MCD). Wall Street analysts expect the results to fall by 0.3% on Tuesday.
Starbucks' downturn in store sales is a result of less visits to the store to buy beverages, although those who still often spend more money on the store. Trading volumes fell 4% from the previous year, while in the U.S., the average ticket volume or dollar amount per transaction rose 3%.
Read more about Starbucks’ stock moves and today’s market moves.
Investors are also focusing on China's performance after four consecutive quarters of declines in competition in the country.
In China, more and more customers have visited Starbucks, but they have spent less money. In Starbucks' second quarter, comparable sales in China were flat as transactions increased by 4% and votes fell by 4%. Analysts expect China's same-store sales to fall by more than 2%.
Other key statistics are disappointing too. The coffee chain reported adjusted earnings per share for the quarter ended March 30 at $0.41, less than Wall Street analysts expected $0.49, according to Bloomberg data. Its revenue of $8.76 billion is less than the estimated $8.83 billion.
Starbucks stock has fallen about 4% over the past year, while the S&P 500 has risen 8.7%.
The company reported adjusted operating margin (% of revenue remaining after operating expenses), at 8.2%, down from 9.5% expected by Bloomberg.
During March, profits of coffee chains fell more than 50% from the previous year to $384 million.
As of 3:19:07 PM ET. The market is open.
Starbucks CEO Brian Niccol acknowledged the results under the results, saying: "Our second quarter results were disappointing," but added: "Behind the scenes, we made a lot of progress and got real momentum in the "Back to Starbucks" program's "Back to Starbucks" program."
“My optimism is already full of confidence and our return to Starbucks program is the right strategy to turn the business around and unlock future opportunities,” he said.
After joining the company’s company salary and controversial benefits from Chipotle (CMG) last fall, Niccol has moved toward a Starbucks turnaround plan as the coffee giant has been in trouble in the U.S. and abroad in recent years.
His plans include speeding up service and cutting Starbucks’ menus to focus on core coffee products, as well as winning customers in China’s competitive international markets.
In January, Starbucks surpassed Wall Street's relatively low expectations for its first-quarter fiscal earnings results. Nevertheless, the company reported that same-store sales fell 4% during the period, traffic fell 6% and average tickets increased by 3%.
In the first quarter, same-store sales fell 6% in China, which was 14% lower in each of Starbucks' first two quarters.
However, Trump's tariffs have brought huge headwinds to Starbucks. Trade turmoil has weakened consumer sentiment, pushing inflation expectations to its highest levels since the 1980s and sparking some anti-American sentiment for foreign American brands.
Read more: What Trump’s tariffs mean to the economy and your wallet
About 19% of Starbucks stores are located in China, making it one of Starbucks’ largest markets, with Trump slapping the country with a 145% “reciprocal” tariff.
However, Nicole is still full of an optimistic tone for China's business opportunities. “I want to make it clear that we have been committed to China for a long time,” he told analysts. “In the coming years, we see a huge potential for our business there and stay open to how we can achieve this growth.”
Nicole said his team is building “motivation” in the Chinese market in a “product innovation” way, such as flavor changes, and “extra marketing” in the country.
Starbucks abandoned more than 1,000 employees in February as part of Niccol's turnaround agenda and reversed its open policy to non-customers.
Last week its union workers rejected the company's latest contract in ongoing negotiations between the two parties. Workers at a Starbucks Buffalo first voted to decide on the union in 2021.
Laura Bratton is a reporter for Yahoo Finance. Follow her on bluesky @laurabratton.bsky.social. Email her to laura.bratton@yahooinc.com.
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