Starbucks’ revenue fell 1% in the April-June period as customer traffic weakened in the U.S. and China.
But the Seattle coffee giant expressed optimism Tuesday that successful new products and improvements in efficiency – including faster drive-thru service and better equipment – will help turn things around in its next fiscal year, which begins later this fall.
"We are focused on what we can control in a consumer environment that can best be described as ‘complex,'” Starbucks CEO Laxman Narasimhan said during a conference call with investors.
Narasimhan said consumers in many markets have gotten more cautious with their spending and are staying home. Starbucks' comments mirrored those at McDonald’s, which said earlier this week that its same-store sales fell 1% in the April-June period.
Starbucks' same-store sales – or sales at locations open at least a year – fell 3%. That was slightly higher than the 2.7% drop Wall Street had expected, according to analysts polled by FactSet.
In China, where Starbucks is feeling pressure from lower-priced rivals, same-store sales plunged 14%. Chinese customers visited less often and spent less per visit, Starbucks said.
Narasimhan said Starbucks believes it still has immense opportunity in China, which is its second-largest market with 6,500 stores. But he said the company is in the early stages of exploring a strategic partnership or joint venture in China that could help it accelerate its growth. Such a partnership could also lessen Starbucks' exposure to the market's volatility.
"What we want to be sure of is that we are further strengthening our advantage in this market because the long-term opportunity for us is significant,” he said.
In the U.S., same-store sales fell 2%. Starbucks said higher spending per visit helped offset a 6% slowdown in traffic.
Narasimhan said there were some bright spots in the U.S. The company's new Summer-Berry Refresher, which has boba-like raspberry pearls, saw the highest first-week sales for a new product in the company's history. Starbucks also noted a 7% increase in U.S. loyalty members during the quarter.
But Narasimhan said the company has work to do to increase afternoon sales and improve its supply chain. The Summer-Berry Refresher was so popular the company ran out of ingredients and had to pull back on marketing, he said. Starbucks also has trouble keeping its food items in stock.
Narasimhan said Starbucks also still faces boycotts of its stores in the Middle East, Southeast Asia and parts of Europe for its perceived support of Israel in the war in Gaza.
Starbucks reported revenue of $9.1 billion for its fiscal third quarter. That was lower than the $9.2 billion Wall Street anticipated, according to analysts polled by FactSet. Net income fell 7.6% to $1.05 billion, or 93 cents per share. That was in line with analysts' forecasts.
Narasimhan confirmed recent reports that activist investor Elliott Investment Management has taken a stake in the company.
"Our conversations to date have been constructive,” he said.
Starbucks shares rose 3% after-hours trading on Tuesday. The stock has fallen 25% in the last 12 months.
