Starbucks, the global coffee giant, has seen its shares plummet nearly 14% following a challenging quarter marked by weakening demand in the U.S. and slower recovery rates in China. This significant drop came before the bell on Wednesday, with the company also cutting its annual forecasts amid numerous pressures including consumer resistance to price hikes and a broader economic slowdown.
The coffee chain reported a notable decline in comparable sales by 4% for the second quarter, sharply contrasting with analyst expectations of a 1.44% rise. These figures reflect a broader impact of inflation and consumer spending habits shifting away from cafes to at-home coffee consumption. Additionally, severe cold weather in the U.S. and disruptions due to the Israel-Hamas war in the Middle East have further dampened sales.
Starbucks' CEO Laxman Narasimhan commented on the earnings call, highlighting the influence of reduced stimulus savings on consumer behavior: "Many customers are being more exacting about where and how they choose to spend their money." This shift comes as individuals grapple with the ongoing economic pressures affecting discretionary spending.
Financially, the situation has led Starbucks to adjust its outlook significantly. The company now anticipates global and U.S. comparable sales ranging from a low single-digit decline to flat, a stark contrast to its previously projected growth of 4% to 6%. Likewise, the forecast for per-share profit growth has been revised downwards from an initial expectation of 15%-20% growth to now being flat or in the low-single digits.
Amid these financial adjustments, Starbucks has also been caught in a geopolitical controversy that has fueled calls for boycotts from pro-Palestinian groups, criticizing the company's perceived support for Israel. This backlash has gained traction on social media, with some users celebrating the company's financial misfortunes as a direct outcome of these boycotts.
In response to inquiries about the impact of the boycotts, Starbucks has reiterated its stance, condemning violence and hate speech, as outlined in a statement provided to Newsweek. Nonetheless, the financial data reveals that the company's net revenue dipped by 2% to $8.6 billion, with a 3% fall in sales, underscoring the quarter's difficulties.
Starbucks is not alone in facing such challenges. McDonald's also reported a slight decline in earnings, influenced partly by similar boycotts and the political tensions affecting its operations in overseas markets.
