Starbucks just keeps taking it on the chin
Same-store sales declined for the second quarter in a row. Outside of the pandemic and the financial crisis, that hasn’t happened this century.
Being the CEO of Starbucks must be exhausting.
The company is locking horns with an aggressive activist investor, Elliott Investment Management, which owns a big chunk of Starbucks stock. It is routinely getting unsolicited advice — including on how to deal with Elliott — from its three-time former CEO, Howard Schultz, who seems like the worst helicopter parent ever. It’s also embroiled in a high-profile labor battle with baristas who want to unionize.
And its stock is colder than an iced latte.
On top of all that, Starbucks is dealing with a mounting business problem that has been causing migraines for retail and food-and-drink CEOs all across America: Consumers who are beleaguered by inflation are finally deciding to pull back.
On Tuesday, Starbucks reported its second straight quarter of declining same-store sales — something that, outside of the pandemic and the financial crisis, hasn’t happened this century, according to FactSet data. The metric declined 3% for the quarter that ended June 30.
The company said its North American same-store sales dropped 2%, which was driven by a 6% decline in transactions and was partially offset by a 3% increase in average ticket.
Translation? The thing saving Starbucks’ same-store sales is that they’re keeping prices high. How does that go over the long term? Ask McDonald’s.
Revenue and profit both declined from a year earlier, too, though per-share earnings were in line with analysts’ expectations. One bright spot was that CFO Rachel Ruggeri said in the earnings release that the company’s efficiency efforts were “tracking ahead of expectations.” Investors sent the stock up 1.7% after hours before the earnings call started.
Starbucks CEO Laxman Narasimhan has been doing the job for a little over a year after coming in as an outsider. Now he’s dealing with conflicting signals from one of his biggest investors and the guy who did the job before him, who is theoretically responsible for the company’s greatness. (For a look inside that push and pull, check out the FT’s deep dive here.)
Meanwhile, things just keep getting worse financially. Somebody get Narasimhan some more caffeine.
