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Starbucks has suffered a second straight quarterly drop in sales, underlining the pressures on a leadership team already contending with an activist shareholder and scrutiny from its charismatic former boss.
The world’s largest coffee chain cited a “cautious consumer environment” as it reported a 3 per cent fall in its global comparable sales for the three months to June, following a 4 per cent decline in its previous quarter. Analysts had expected the measure of how cafés open for at least 13 months are performing to show a fall of about 2.4 per cent.
The disappointing third-quarter results come as Starbucks negotiates with activist Elliott Investment Management, which has been seeking changes at the $85bn company, including possible board representation.
Laxman Narasimhan, Starbucks chief executive, confirmed on the company’s earnings call that Elliott had amassed a stake, telling analysts: “Our conversations to date have been constructive.”
Starbucks’ board and management have also faced public critiques from Howard Schultz, the former three-time chief executive who built up the company after first taking the reins in 1985 and remains its sixth-largest shareholder.
Narasimhan, CEO since early 2023, has been working to win back customers whose spending power has been eroded by inflation. In China, a critical growth market, Starbucks has struggled in the face of multiplying competitors and a sluggish economy.
Its comparable sales in China slid by 14 per cent in the quarter, compared to expectations of a 10 per cent fall, reflecting lower amounts paid per visit and fewer transactions overall.
Intensifying competition in the Chinese market had driven “unprecedented store expansion and a mass segment price war” at the expense of its sales and profitability, Narasimhan said.
Group-wide revenues for the quarter fell 0.6 per cent to $9.1bn, below Wall Street expectations of $9.2bn. Net profit dropped by 7.6 per cent to $1.05bn, marginally above consensus.
To boost demand, Starbucks has launched new deals and promotions such as $5 combos of coffee and a croissant.
Narasimhan said a three-part action plan was “beginning to work and driving operational improvements that we expect to improve financial performance”.
Rachel Ruggeri, chief financial officer, said its efficiency efforts were “tracking ahead of expectations” but had been partially offset by “investments associated with the cautious consumer environment”.
The company said that its operating profit margin shrank by 0.6 percentage points year over year in the quarter, to 16.7 per cent. This was “primarily driven by increased promotional activity”, raising wages for baristas and “deleverage”, or cutting debt.
Shares of Starbucks rose about 5 per cent to $79.80 in after-hours trading. They remain sharply lower from the start of the year.
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