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Starbucks (SBUX)’s bitter earnings report doesn’t seem to have spooked investors.
The coffee giant is lowering its full-year sales outlook after first-quarter profit fell short of sales and bottom line. Sales rose 8% year over year to $9.4 billion, falling short of analysts’ expectations for a 10.2% increase to $9.6 billion.
Adjusted earnings per share rose 20% to $0.90, missing expectations for a 22.5% increase to $0.93.
Shares rose more than 4% in after-hours trading. Morningstar analyst Sean Dunlop told Yahoo Finance that investors “were pricing in much worse.”
U.S. same-store sales were also disappointing, increasing 5% instead of the 5.73% that Wall Street had expected. Customer traffic increased by just 1%, but check size increased by 4%, both below estimates.
The company now expects fiscal 2024 total revenue growth to be in the 7% to 10% range, down from the previous low range of 10% to 12%. Global and U.S. same-store sales are expected to increase 4% to 6%, both down from the previous range of 5% to 7%.
Same-store sales growth in China is expected to remain in the low single digits, falling from 4% to 6% for the remainder of this year.
Starbucks expects fiscal year profit growth to be flat at 15% to 20%.
Despite missing out on revenue, Dunlop said the overall increase in foot traffic seems to suggest the company is still outperforming the industry and “hasn’t significantly outpaced consumers in price increases.” Ta. The company’s loyalty customers also spent a record amount per member this quarter.
To increase U.S. foot traffic, Starbucks plans to introduce three new flavor lines targeted at Gen Z consumers, especially afternoon visitors, as well as new drinks ahead of Valentine’s Day.
On a call with investors, Starbucks CEO Laxman Narasimhan outlined the “negative impact” on business in the Middle East, saying it would “also impact the U.S. due to misunderstandings about our position.” It has reached a point of no return.”
In an internal memo in mid-December, Narasimhan expressed concern about current events and the spread of misinformation about the company.
Overseas, Starbucks’ performance fell far short of its lofty ambitions. The company aimed to expand the number of stores in China, its second largest market, to 9,000 by the end of 2025.
However, same-store sales in China rose only 10% this quarter, falling short of the 16% increase that Wall Street had expected. Customer traffic increased by 21% year-on-year as coronavirus restrictions eased, but check size decreased by 9% as sales of big-ticket items slowed. [Chinese] Consumers are becoming more cautious with their spending,” Belinda Wong, Starbucks China co-CEO, said by phone.
Competition is also erupting domestically, with local brands such as Luckin Coffee and Kotti Coffee being aggressive with their pricing strategies.
“We operate in an environment of increased promotion. [in China]”We have no interest in participating in price competition,” Wong said.
Narasimhan added that Starbucks believes there is “huge potential in China’s premium market and no one is better positioned to lead in this space.”
Starbucks plans to revamp its local menu, invest more in technology and open more new stores in lower-tier markets.
Overall, international sales increased 7% as average check size decreased but foot traffic increased.
Chief Financial Officer Rachel Ruggeri said on a conference call that China’s slower-than-expected recovery and conflict in the Middle East were “temporary” headwinds, and the company remained committed to international expansion. He said there was.
Globally, Starbucks aims to increase its store count from more than 38,000 stores to 55,000 by 2030. In the first quarter, the company opened 549 net new stores.
Following its fourth quarter results in November, the company announced plans to implement a $3 billion efficiency program over the next three years, of which Starbucks claims $2 billion will be saved to the company. .
The government also aims to double the hourly wage of workers by fiscal 2025 compared to fiscal 2020.
Prior to the earnings release, stocks had fallen 14% over the past year, while the S&P 500 Index (^GSPC) had risen 21%. Meanwhile, shares of McDonald’s (MCD), which just announced its expansion into the coffee scene with CosMc, are up about 7.3% over the past year.
Revenue summary
Here’s what Starbucks reported in Q1 compared to Wall Street expectations, based on Bloomberg consensus estimates:
Revenue: $9.4 billion vs. $9.6 billion
Adjusted earnings per share: $0.90 vs. $0.93 expected
Same store sales growth: 5% vs. 6.39% expected
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North America and USA: 5% vs. 5.73% expected
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Overseas: 7% vs. 11.6% expected
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China: 10% vs. 16.1% expected
Increased traffic:
Increase in ticket size:
Correction: A previous version of this article misspelled Wedbush analyst Nick Setian’s name. We apologize for the error.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
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