Starbucks on Tuesday lowered its full-year sales forecast after reporting a drop in comparable sales for the first time in almost three years as it struggles with weak demand for its coffee in the United States and China, its two largest markets, UNN reports citing Reuters.
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The company's shares fell 12% on Tuesday in extended trading, as the coffee chain missed quarterly profit estimates and took a hit from geopolitical uncertainty in the Middle East.
Starbucks expects comparable sales growth - both globally and in the U.S. - to be in the range of a small single-digit decline to stabilize for the full year, compared to previous growth of 4-6%.
The second quarter was "challenging," said CFO Rachel Ruggeri during a teleconference on the results of the earnings report.
"...Headwinds persisted throughout the quarter, forcing us to review our actions and response plans to both unlock and attract demand," Ruggeri said.
Western brands such as Starbucks and McDonald's are also feeling the impact of the boycott campaign in the Middle East and some other countries in connection with Israel's military offensive in the Gaza Strip, the publication notes.
In the US, Starbucks faced a slowdown in demand as cold weather in January and an unstable macroeconomic environment affected sales of more expensive drinks.
According to LSEG, the coffee chain's global comparable sales in the second quarter fell by 4% compared to the 1.44% growth forecast by analysts.
"We continue to see the impact of the slower-than-expected recovery and see fierce competition among price players in the market," CEO Laxman Narasimhan said in a call following the earnings report.
Comparable sales were down 11% in China and 3% in the US.
"We think the company will be able to formulate a plan to revive traffic trends in the near future," said Matthew Goodman, senior analyst at research firm M Science.
M Science's data show that sales growth slowed in February compared to the previous month and has not yet recovered, particularly in the current quarter.
Operating margin in the quarter fell 240 basis points to 12.8% as Starbucks struggled with tough labor market conditions and increased union action, while increasing investments in promotions to drive demand.
Excluding items, the company's profit was 68 cents per share, falling short of market expectations of 79 cents, the publication said.