Starbucks Reports Another Disappointing Quarter as Revenue Declines

After the closing bell on Tuesday, Starbucks reported that third-quarter revenue dropped 1% to $9.1 billion. This was lower than the expected $9.2 billion, according to Yahoo! Finance.

Due to increased menu prices and promotions, Starbucks customers are spending 4% more per visit. Yet, same-store sales in North America still fell by 2%, according to Starbucks CFO Rachel Ruggeri. Traffic inside stores also declined by 6%.

On an earnings call shortly after releasing the figures, CEO Laxman Narasimhan blamed a “complex” consumer environment but noted that the entire organization has been working on turning it around. Narasimhan remains optimistic about the long-term potential of the company to remain the world’s leading coffee retailer.

“Our three-part action plan is beginning to work and driving operational improvements that we expect to improve financial performance,” Narasimhan said, per Starbucks’ Q3 earning report. “Our growing culture of focused innovation and relentless execution continues to enhance our capabilities.”

The strategy is simple: to attract more customers. Starbucks’ plan will be the continued introduction of new menu items while still maintaining a focus on its “core coffee forward offerings.”

Starbucks has already put part of the plan into action. New menu items that have already rolled out include iced energy drinks and limited-time beverages with flavored boba-like pearls. Also recently launched is a “pairings menu,” which is essentially a combined meal of coffee and a breakfast sandwich for one price.

The recent downturn is reminiscent of second-quarter earnings when Starbucks faced a revenue decline of 2%. The disappointing numbers were fueled by same-store sales falling in both the U.S. and China, the company’s two biggest markets.

Despite the numbers, Starbucks is likely to weather the storm. The coffee industry, in general, is not subject to rapid changes and is slow to adopt new technology, giving a large company like Starbucks the advantage. Plus, coffee consumers remain loyal to the brand even with recent price hikes.

As of July 2024, there were 39,477 Starbucks locations worldwide, with 526 new openings in the third quarter alone. Even with strong competition in China, the company is still planning an additional 1,690 store openings in the country by 2025.