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Home Stock Analysis Starbucks (SBUX): The coffee house chain’s plans for two major markets

Starbucks (SBUX): The coffee house chain’s plans for two major markets

by xyonent
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Starbucks Corporation (NASDAQ: SBUX) shares fell more than 1% on Friday. Over the past three months, the stock has fallen 14%. The company saw sales and profits decline in the most recent quarter as it faced a tough operating environment in many markets, including the U.S. and China, its two largest markets. Below is how those two regions performed and the company’s plans.

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Starbucks’ U.S. revenue for the second quarter of 2024 was $5.9 billion, flat compared to the same period a year ago. Same-store sales declined 3% primarily due to a 7% decrease in same-store transactions, partially offset by a 4% increase in average tickets. The company increased its store count by 3% in the second quarter, ending the quarter with 16,600 stores in the region.

As discussed during our quarterly conference call, the challenging macroeconomic environment weighed on customer traffic and reduced occasional customer traffic in the U.S. Adverse weather conditions also impacted U.S. same-store sales in the second quarter.

Starbucks is working to improve its performance in the US market, and as part of that effort, it is working to meet demand by time of day. Meeting the increased demand during peak morning hours is a challenge, and the company is using technology to improve customer service and increase sales during these times. The company is also working to capture unmet demand during the evenings and weekends, which it sees as a huge opportunity to drive long-term growth.

Starbucks also plans to launch new products for its U.S. customers. The company’s core coffee business continues to perform well. Cold drinks made up 63% of the company’s beverage sales in the second quarter, up 1% from last year. As part of its product innovation, the coffee chain launched a pistachio latte and a new flagship product: iced shaken espresso. The company sees opportunities in this market for both coffee and non-coffee.

For the full year 2024, U.S. same-store sales are expected to range from a low-single-digit decline to flat. Starbucks expects its U.S. store count to grow by about 4% for the year.

China

Starbucks’ revenue in China fell 8% year over year to $705.8 million in the second quarter of 2024. Same-store sales fell 11% due to a 4% decrease in same-store transactions and an 8% decrease in average ticket. The company grew its store count by 14% in the second quarter, bringing its store count in the region to a total of 7,093.

Starbucks said macro pressures have negatively impacted foot traffic, with a slower-than-expected recovery in China. As noted on the conference call, performance in the region was impacted by factors including lower casual foot traffic, changing holiday patterns and a promotion-heavy environment.

Despite these headwinds, Starbucks continues to see strong demand in China. The company saw growth in morning hours and positive delivery performance in the region. Starbucks Rewards membership grew to 21 million members. The company also launched 27 new products as part of its product innovation efforts throughout the second quarter.

Starbucks continues to execute on its strategy in China by investing heavily to offer more coffee, local product innovation and improve its omnichannel capabilities, and plans to increase its new store opening rate in lower-tier markets and emerging regional cities where the economics of new stores are expected to be stronger.

Starbucks forecasts that same-store sales will decline by single digits for the full year 2024, while the number of stores in China will increase by about 12%.

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