Starbucks released its fiscal first quarter 2024 earnings results on January 30th, missing analysts’ expectations on both revenue and earnings per share. The coffee giant has faced headwinds from slower sales growth, especially in its key US market.
Q1 Performance Rundown
- Revenue of $8.71 billion, up 5% year-over-year but below expectations of $8.79 billion
- Earnings per share of $0.75, down from $0.85 last year and missing forecasts of $0.77
- Global same-store sales grew 5%, lower than the expected 6.7% increase
- Operating margin declined from 18.7% to 17.5%
- Full results breakdown
“Our Q1 results reflect solid performance across our business despite ongoing macroeconomic uncertainty,” said Starbucks CEO Kevin Johnson. “While demand was strong overall, sales growth moderated in the back half of the quarter primarily driven by softening consumer spending trends in the U.S.”
Key Numbers Breaking Down Starbucks Earnings
| Metric | Q1 2024 Result | Year-Ago Result | Analyst Estimate |
|---|---|---|---|
| Revenue | $8.71 billion | $8.29 billion | $8.79 billion |
| EPS | $0.75 | $0.85 | $0.77 |
| Global Same-Store Sales Growth | 5% | 11% | 6.7% expected |
| Operating Margin | 17.5% | 18.7% | 18.9% expected |
Source: Starbucks Q1 2024 Earnings Release
Sales Growth Slows, Especially in Key US Market
Starbucks saw its sales growth rate slow significantly from the prior year period, when stimulus spending and easing pandemic restrictions provided a temporary boost.
Global same-store sales were up 5% for the quarter. This reflected an easing of demand compared to the prior year, especially in the second half of the quarter when growth slowed to 4%.
The key US market was notably weak, with same-store sales rising just 3% compared to forecasts of over 4% growth. Customer traffic trends softened in late December and early January as consumers pulled back discretionary spending amidst economic uncertainty.
International same-store sales were a relative bright spot at 7% growth, but also reflected some demand moderation versus earlier in 2022.
“The slower-than-expected sales momentum indicates economic pressures weighing on consumers,” according to Bank of America analyst Sara Senatore.
Margin Pressures Persist from Rising Costs
In addition to slower revenue gains, Starbucks continues to battle cost inflation, especially related to wages, milk, cups and other materials. The company has raised prices and taken other actions, but these could not fully offset margin impacts.
Operating margin declined 120 basis points to 17.5%, with Starbucks noting higher-than-expected expenses in areas like claims and bad debt. Margin pressures have persisted for several quarters as the company tries to balance capturing demand while dealing with a tougher cost environment.
China a Key Growth Driver Amid Competition
The China market remained one growth spot for Starbucks despite some pandemic-related impacts early in the quarter, along with a highly competitive environment.
Same-store sales in China were up 7%, led by 18% transaction growth. Starbucks opened 292 net new stores in China during the quarter, but rising competition from Luckin Coffee and other players creates uncertainty around the long-term growth trajectory.
“There are early signs of softness of the Chinese consumer,” noted BofA’s Senatore, “but Starbucks continues to invest behind [China] growth.”
Outlook Calls for Continued but Slower Growth
Alongside the Q1 results, Starbucks issued full-year fiscal 2024 guidance targeting:
- Global same-store sales growth of 4% to 6%
- Revenue growth of 5% to 7%
- Operating margin recovery to 19% to 20%
- EPS growth of 4% to 6%
This outlook points to a continuation of slower sales momentum and ongoing margin pressures compared to the strong rebound years of 2021 and 2022 coming off pandemic impacts.
Starbucks expects to drive growth through new store expansion – including some improvement in US development – along with innovation around cold beverages, customer personalization and other initiatives. But macroeconomic challenges and high inflation cast doubt and uncertainty on the near-term outlook.
Investor Reactions: Concerns Over US Growth Trajectory
Starbucks stock declined approximately 2% in after-hours trading following the Q1 earnings release. Investors expressed particular concern about the sharp slowdown in same-store sales growth in the US market in late 2022.
“The deceleration in traffic in the US is the key debate for the Starbucks story,” noted Stifel analyst Chris O’Cull. “There is a question of whether the US slowdown was primarily driven by the macro economy or whether competitive or other factors also contributed.”
While the longer-term growth narrative remains largely intact, uncertainty around near-term consumer spending trends in Starbucks’ home market – representing over 60% of revenue – presents a critical variable in determining the stock’s direction this year.
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