Starbucks Stock Drops 6% Following Disappointing Q2 Results
Starbucks stock tumbled in after-hours trading Tuesday after the coffee giant reported weaker-than-expected second-quarter results. The company missed both earnings and revenue targets as same-store sales declined for the fifth consecutive quarter.
Earnings Fall Short of Wall Street Expectations
The Seattle-based coffee chain reported adjusted earnings of 41 cents per share, well below analysts’ expectations of 49 cents. Revenue rose slightly to $8.76 billion but failed to reach the projected $8.82 billion.
Net income attributable to the company was $384.2 million, down by half compared to $772.4 million in the same quarter last year. Operating margin fell dramatically from 12.8% to 6.9%.
“Back to Starbucks” Turnaround Shows Early Signs of Progress
Despite the disappointing results, CEO Brian Niccol claimed the company’s turnaround strategy is gaining momentum, though financial improvements remain elusive.
“Our financial results don’t yet reflect our progress, but we have real momentum with our ‘Back to Starbucks’ plan,” Niccol said in a company video.
The turnaround effort includes scaling back automation plans and investing more in labor. Starbucks stock investors were told that earnings per share “shouldn’t be used as a measure of success” at this stage of the comeback plan.
Traffic Declines Continue to Plague Performance
Global same-store sales fell 1% during the quarter, driven by a 2% decline in transactions. The situation was more concerning in the U.S., where transactions dropped 4% and same-store sales declined 2%.
Chinese locations showed flat same-store sales as transaction growth was offset by lower average purchase amounts.
External Challenges Threaten Recovery
Starbucks stock faces additional headwinds from external factors. Trade conflicts resulting from President Trump’s new tariffs could affect coffee bean costs, with 10-15% of the company’s product and distribution expenses coming from raw coffee beans.
“We expect that the balance of this fiscal year will bring some challenges as we navigate a dynamic macroeconomic environment, including tariffs and volatile coffee prices,” the company stated in a regulatory filing.
Corporate Restructuring Continues
The turnaround plan has included significant corporate restructuring. In late February, Starbucks announced 1,100 corporate layoffs, plus several hundred unfilled positions would be eliminated.
Looking ahead, Niccol outlined plans to improve café environments with better seating and “premium touches” to encourage customers to linger longer. The company also intends to revamp its innovation process and optimize staffing levels.
Starbucks stock fell approximately 6% in extended trading following the earnings announcement.
Source
CNBC – Starbucks stock falls as sales disappoint, turnaround pressures earnings
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