During the earnings season of the U.S. stock market, there are often performance crashes, and this will be the turn of the well-known brand Starbucks (SBUX.US).
A few days ago, Starbucks announced its second quarter report for fiscal year 2024, during which a number of data fell short of market expectations.
On the impact of the earnings news, Starbucks jumped and plummeted 15.9% on May 1 (local time), the biggest drop since March 2020.
What was the second quarter performance?
Starbucks' revenue currently comes primarily from three business segments: 1) North America, including the U.S. and Canada, 2) International, including China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America and the Caribbean, and 3) Channel Development.
According to the second quarter report of fiscal year 2024, Starbucks achieved revenue of $8.56 billion, down 2% year-on-year, lower than market expectations, net profit attributable to the parent company of $770 million during the period, down 15% year-on-year, and adjusted earnings per share of $0.7, also lower than market expectations.
By region, North America achieved revenue of $6.38 billion in the second quarter, flat year-over-year, primarily due to a 3% year-over-year decline in same-store sales, significantly below market expectations.
Among them, the U.S. market contributed $5.96 billion in revenue in the second quarter, basically the same as last year, but same-store sales fell by 3% year-on-year, which fell short of market expectations.
In the second quarter, the International segment reported revenue of $1.76 billion, down 5% year-over-year, primarily due to a 6% year-over-year decrease in same-store sales and an unfavorable currency impact of approximately 5%.
Among them, the Chinese market contributed $710 million in the second quarter, down 8% year-on-year, and same-store sales in this market plummeted 11% year-on-year, which was also significantly lower than expected.
It is worth mentioning that in the important Chinese market, Luckin Coffee (LKNCY.US) has replaced Starbucks as the "coffee brother" in the Chinese market, and its total sales in the Chinese market in 2023 have surpassed Starbucks.
According to the CEO of Starbucks, the company will continue to implement the three key elements of its China strategy: 1) provide more locally relevant coffee innovations, 2) increase significant technology investment, improve omni-channel capabilities, and digitally empower stores, and 3) further expand new stores in lower-tier markets, especially in new county-level cities, given the strong economic benefits of new stores in lower-tier markets.
In addition, the channel development segment achieved revenue of $420 million in the second quarter, a year-over-year decrease of 13%, mainly due to the decline in revenue from the Global Coffee Alliance following the sale of the best coffee brands in Seattle last year and SKU optimization.
Overall, Starbucks' global same-store sales fell 4% year-over-year in the second quarter, the first decline since 2020 and significantly worse than market expectations.
Downward revision of performance growth expectations, Starbucks is bearish
Regarding the second-quarter results, the CEO of Starbucks said that in a highly challenging environment, the results of this quarter do not reflect the strength of the company's brand, the company's capabilities or future opportunities, and the company is confident in its long-term development.
However, despite the challenges, Starbucks continued to revise its growth forecast for 2024 downward. Starbucks said it expects global revenue growth to be in the low single digits in 2024, well below its previous forecast range of 7% to 10%. Meanwhile, global and U.S. same-store sales are expected to decline in the low single-digit digits or be flat. In addition, Starbucks has lowered its forecast for same-store sales in China and global store growth.
After releasing results and downgrading performance growth expectations, Starbucks was also bullished by some institutions.
Among them, Wells Fargo lowered its Starbucks price target to $90 per share from $105, UBS remained neutral on Starbucks but lowered its price target to $85 from $95, Deutsche Bank analysts revised Starbucks from "buy" to "hold" with a price target of $89, and JPMorgan Chase lowered its price target on Starbucks from $100 to $92.
From the current point of view, Starbucks is indeed facing challenges, and the performance of the Chinese market has seriously dragged down the overall performance. Starbucks' CEO also proposed three approaches, but it remains to be seen how effective they will be.
Author: Yan XIV