5/2/2024: Starbucks Had a Terrible Quarter

Starbucks reported quarterly earnings a couple of days ago and the results were shockingly disastrous. Revenue was $8.56B vs. $9.13B expected, a 6.24% miss. EPS was $0.68 vs. $0.79 expected. SBUX 0.00%↑ stock tanked 15% after the report.

Starbucks’s results are really astoundingly bad. They were growing and growing and suddenly in Q1, their sales just tanked. I wonder why. The same store sales fell 3% in North America where the number of transactions went down 7% and average transaction price went up 3%. In their international markets, both the number of transactions and average transaction price were down on the same store basis. China comparable store sales declined 11%, driven by an 8% decline in average transaction price and a 4% decline in number of transactions.

I am a Starbucks coffee drinker. Their product and services might not be the best but are consistently good. Though I can totally understand why people don’t want to spend $5+ for a Latte these days. The general trend I have seen is that people go to grocery stores to buy easy-to-cook or ready-to-eat items for food and drinks because there’s a price shock every time people dine out.  Grocery stores are generally cheaper and don’t ask for outrageous tips. In addition, the essentials are getting more expensive. The evil utility company in my area PG&E just raised electricity costs by 20+% and my home insurance premium is up 10+% this year. People spend more on essentials so they spend less on discretionary items like fancy coffees. Home coffees are way cheaper and taste about the same.  I suppose people didn’t care about the cost until they did. I wonder if Starbucks’s slowdown is an isolated case or there’s a general slow down of spending on discretionary items.