By Juveria Tabassum
(Reuters) -Starbucks on Tuesday reported a fall in same-store sales for the first time in about three years as it battled weak demand for its coffees in the U.S. and China, its two biggest markets, sending its shares down 11% in extended trading.
The coffee chain’s second-quarter global comparable sales fell 4%, compared with a 1.44% rise estimated by analysts, according to LSEG data. It also missed estimates for quarterly profit by a wide margin.
“In a highly challenged environment, this quarter’s results do not reflect the power of our brand,” CEO Laxman Narasimhan said.
Western brands such as Starbucks and McDonald’s are feeling the impact of a boycott campaign in the Middle East and certain other countries over Israel’s military offensive in the Gaza Strip.
Starbucks has also seen some spillover impact of the boycott campaign in the United States, while facing decelerating demand for a second straight quarter as a choppy macro environment weighed on sales of its pricier beverages.
Quarterly comparable sales declined 3% in the U.S. due to a fall in transactions, even as average spending per customer rose 4%.
Operating margin in the reported quarter fell 240 basis points to 12.8% as Starbucks grappled with a tough labor market and increased union actions, while boosting investments in promotions to whip up demand.
“The results fell short of these already tempered expectations,” said Matthew Goodman, senior analyst at research firm M Science.
Excluding items, the company earned a profit of 68 cents per share, missing market expectations of 79 cents.
Comparable sales in China fell 11%, compared with a 10% jump in the preceding quarter, while in the United States, they fell 3%.
The company is up against increased competition in China from mass-market brands, which offer coffee that is easier on the pocket for cautious consumers, even as it tries to solidify its position in the premium coffee market.
(Reporting by Juveria Tabassum; Editing by Anil D’Silva)
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