Starbucks’ Siren System plan

Starbucks this year rolled out its Siren System plan, which included updating its equipment to increase the pace of service at its stores, as the company turns to discounts and promotions to appeal to cost-conscious consumers.

The system was deployed across its U.S. company operated stores in the reported quarter, and Starbucks plans to have the equipment, such as a refit to its espresso machines, in less than 10% of its global stores by the end of year.

“We are focused on what we can control in a consumer environment that can be best described as complex,” CEO Laxman Narasimhan said on a post-earnings call.

Starbucks’ revenue

Starbucks’ operating margin fell 70 basis points in the third quarter, a sequentially smaller drop. Profit of 93 cents per share was in line with LSEG estimates.

“Quite possibly, investors are viewing this as not as bad as was feared potentially. We’re kind of impressed that they were able to open 526 new stores in the quarter,” said Greg Halter, director of research at Carnegie Investment Counsel.

Starbucks’ coming up with deals

U.S. fast-food chains have rolled out limited deals and offers to bring back to stores thrifty consumers increasingly looking to cook at home in the face of sticky inflation.

Known for its pricey lattes, Starbucks spent the summer offering uncharacteristic deals including bundled menus such as a coffee or tea paired with a butter croissant for $5 in June, as well as 50% off deals on Fridays in May.

Starbucks weak in China

In China, the company grappled with weak consumer spending and stiff competition from local coffee chains such as Luckin’ Coffee in a weak macroeconomic environment.

Still, same-store sales tumbled 14% in China, following an 11% drop in the second quarter. Sales in international markets also missed expectations, echoing results from McDonald’s and Domino’s.

Starbucks global sales down

Starbucks continued to face weakness in the Middle East, South Asia and some parts of Europe as a result of boycotts related to the war in Gaza.

The Seattle-based company reaffirmed its global and U.S. comparable sales in range of a low single-digit decline to flat, and annual profit in the range of flat to low-single digits.

The coffee chain also confirmed on a post-earnings call that Elliott Investment Management was a shareholder and talks with the activist investor had been “constructive”.

Stock update

Starbucks share price was down 22% this year. Though Starbucks shares were up 5% in extended trading after executives reaffirmed its annual forecasts. Starbucks’s share price closed at $75.93. It is up 3.86% in the last 3 months and down -25.24% in the last 12 months.

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In a LinkedIn post published over the weekend, Schultz said many people had reached out to him after Starbucks reported weaker-than-expected Q2 sales and earnings last week.

Starbucks low Q2 performance

Howard Schultz, who no longer has a formal role within Starbucks, wrote that the company needs to improve its mobile order and pay experience and overhaul how it creates new drinks to focus on premium items that set it apart.

“The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores,” Schultz wrote in a letter on Sunday evening posted to LinkedIn.

In a statement, Starbucks said it always appreciates Schultz’s perspective.

“The challenges and opportunities he highlights are the ones we are focused on. And like Howard, we are confident in Starbucks long-term success,” Starbucks said.

Starbucks financial results

On Tuesday, Starbucks slashed its full-year forecast after a surprise decline in same-store sales led the company to miss Wall Street’s estimates for quarterly earnings and revenue.

The Seattle coffee giant said revenue dropped 2% in the January-March period as store traffic slowed around the world. It was the first time since 2020 that the company saw a drop in quarterly revenue. Starbucks also lowered its sales and earnings guidance for its full fiscal year.

Analysts, caught off guard by the chain’s underperformance. Starbucks’ U.S. traffic fell 7% in the quarter. The chain could still be dealing with the repercussions of social media backlash related to its position on conflict in the Middle East, Bank of America Securities analyst Sara Senatore wrote in a research note Monday.

Howard Schultz’s contribution to Starbucks

Schultz, who turned Starbucks from a small chain into a coffee giant, stepped down from his latest stint as chief executive a little over a year ago. He handed the reins over to Laxman Narasimhan, who previously was CEO of Lysol owner Reckitt. Schultz also stepped down from the Starbucks board last year.

Starbucks strategy

Howard Schultz is not impressed with the current offerings, like Starbucks new lineup of spicy drinks and said its strategy needs to be “elevated with coffee-forward innovation that inspires partners, and creates differentiation in the marketplace, reinforcing the company’s premium position.”

He appeared to offer advice to his successor as he tries to turn Starbucks sales around.

“Leaders must model both humility and confidence as they work to restore trust and increase performance across the organization,” Schultz wrote.

Drop in sales

Same-store sales in the United States fell 3%, a sharp reversal from the same quarter a year ago, when they grew 12%. In China, the chain’s second-largest market, sales fell a staggering 11%.

Narasimhan vowed to turn the business around by including an update to its app and mobile and payment offerings, improving service times and rolling out revamped menu items to lure customers back.

Starbucks stock report

Since the report, Starbucks stocks have fallen 17%, dragging its market value down to $82.8 billion. 

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