TMTPost -- Settling around 15.9% lower Wednesday, shares of Starbucks Corporation suffered their worst day since the early days of the Covid-19 pandemic in March 2020 after the world’s largest coffee chain operator posted a stunning miss both top and bottom line.

Credit：Starbucks

Starbucks reported net revenue dropped 2% year-over-year (YoY) to $8.56 billion in the fiscal second quarter ended March 31, 2024, missing the analysts’ projected $9.13 billion. Earnings per share (EPS) plunged 13.9% YoY to $0.68, compared Wall Street estimates of $0.79. Net income attributable to the company tumbled nearly 15% to $772.4 million. The same-store sales surprisingly fell for the first time since 2020 with a YoY decline of 4%, versus analysts’ expected growth of 1%.

Starbucks said decrease in global same-store sales in the fiscal second quarter was fueled by a 6% decline in comparable transactions, partially offset by a 2% increase in average ticket. North America and U.S. comparable store sales that quarter dropped 3% with a 7% fall in comparable transactions, partially offset by a 4% increase in average ticket. International sales declined deeper than Starbucks’ home market. In China, its second largest market, comparable store sales tumbled 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions.

“In a highly challenged environment, this quarter's results do not reflect the power of our brand, our capabilities or the opportunities ahead,” commented CEO Laxman Narasimhan. “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”  Under this environment, many customers have been more exacting about where and how they choose to spend their money, Narasimhan told analysts at an earnings conference.

Starbucks signaled performance in the next two quarters could be more sluggish than expected. For fiscal 2024, it slashed revenue growth forecast to the low single digits, down from prior outlook of 7% to 10%. it cut projections for worldwide and U.S. same-store sales growth to a range of low single digits to flat from its previous forecast of 4% to 6%. Same-store sales in China are expected to fall by single digits, down from the previous outlook of a single-digit increase.

Deutsche Bank anlyst Lauren Silberman downgraded Starbucks shares to hold following the worse-than-expected earnings. Silberman said the poor performance of the new offering in U.S. makes Starbucks harder to underwrite a meaningful reacceleration amid a more challenging consumer and macroeconomic backdrop. The analyst also concerned ongoing consumer and same-store sales weakness in China and the company’s decision to slow unit growth.

The Chinese market has been one of Starbucks' main growth engines in the past two years. As of the March quarter 2024, Starbucks has 7,093 stores in China across over 250 cities, the latest financial report showed. According to its 2025 China Market Strategic Vision unveiled in September, 2022, Starbucks planned to open 3,000 new stores in China at an average rate of one store every 9 hours over the next three years.

Besides big cities, Starbucks is also expanding its presence in small cities in China these year as it has said that lower-tier market is the focus for future business expansion. Starbucks China Chairperson and CEO Belinda Wong vowed to accelerate entering county-level markets at an earnings call late January. By the end of the quarter ended December 31 2023, Starbucks had only entered 857 out of nearly 3,000 county-level and above cities in China, Wong said. While typically, 60% of Starbucks’ new store openings in a year are in first- and second-tier cities, which are its top 20 cities, stores in county-level markets usually perform better than new stores in the top 20 cities, the head of Starbucks China noted.

Starbucks placed priority on supply chain during its expansion in China. The company entered China in 1999 and established the Coffee Farmer Support Center in Yunnan three years later to provide local farmers with agricultural skills training and resources.

Last August, Starbucks announced the establishment of the Starbucks China Innovation and Technology Center (SITC) in Shenzhen, with an initial investment of approximately RMB1.5 billion over the next three years. The center serves as Starbucks' first dedicated digital technology innovation center in China, further driving the digitization process of its stores and multiple channels. A month later, Starbucks China Coffee Innovation Park (CIP) in Kunshan, Jiangsu province, started operation, the first time for the coffee giant to fulfill scaled vertical integration “from bean-to-top” across one market. Starbucks has input a total of RMB1.5 billion in CIP since the initial announcement in March 2020, and made the project its largest investment in coffee manufacturing and distribution center outside the United States. The park is also the company’s most environmentally friendly and energy-saving production base globally.