SEATTLE – Starbucks Corp. lowered its fiscal 2024 sales guidance due to weakness that began in November and was caused by global macroeconomic trends, particularly conflicts in the Middle East and a continued slow post-pandemic recovery in China. The guidance cut followed a strong first quarter, ended Dec. 31, 2023, in which the company’s net income rose 19.8% when compared to the first quarter of fiscal 2023 and quarterly sales rose 8.2%.

“We now expect our full-year global revenue growth in the range of 7% to 10%, revised from our previous range of the low end of 10% to 12%,” said Rachel Ruggeri, chief financial officer, during a Jan. 30 conference call with securities analysts. “Full-year global and US comp growth in the range of 4% to 6%, both revised from the previous range of 5% to 7%. China comp growth of low single digits for the balance of the year, revised from the previous range of 4% to 6% in Q2 through Q4 with higher comp in Q1.”

Laxman Narasimhan, chief executive officer, said the company saw global sales decelerate in November.

“We entered the first quarter very strong globally,” he said. “We had great momentum in August and September, and that continued into October, which exceeded our expectations across every measure. Beginning in mid-November, while our business continued to grow, the growth rate was impacted by three unexpected factors.  

“First, we saw a negative impact to our business in the Middle East. Second, events in the Middle East also had an impact in the US, driven by misperceptions about our position. Our most loyal customers remain loyal and in fact, increased their frequency and spend in the quarter, but we did see a softening of US traffic. Finally, we experienced a slower-than-expected recovery in China, driven by a more cautious consumer.”

Efforts to counter the sales deceleration include targeted offers aimed at occasional customers, incentivizing specific Starbucks Rewards members, and engaging with consumers through social media and marketing about the company’s positions on specific issues.

“… When we look at our revised revenue guidance, it's based on the performance we saw in Q1 as well as the near-term and transitory headwinds that we've spoken about,” Ruggeri said. “With that, we expect Q2 will be below the full year guidance ranges, largely due to the fact that it's going to take some time for our plans to materialize as well as we'll continue to see impacts to our business in the Middle East.”

The company maintained its full-year earnings-per-share guidance of 15% to 20%, noting management expects a $3 billion productivity program currently underway to support earnings.

Starbucks’ first-quarter net income was $1.02 billion, equal to 90c per share on the common stock, up from $855.2 million, equal to 74c per share, the year before.

Quarterly sales were $9.4 billion, up from $8.7 billion in fiscal 2023.

“Our global comparable store sales grew 5% year-over-year, supported by a 5% comp growth in North America, driven by 4% ticket growth and 10% comp growth in China,” Narasimhan said. “Our global operating margins expanded by 130 basis points to 15.8%, and our overall earnings per share grew 20%.”

North America segment sales rose 9% to $7.1 billion during the quarter. The sales increase was supported by the 4% growth in average ticket and a 1% increase in transactions.

International segment sales rose 12% to $1.8 billion.

“The revenue growth was driven by a 12% increase in net new company-operated stores year-over-year as well as a 7% increase in comparable store sales driven by 11% transaction growth, partially offset by a 3% decline in average ticket,” Ruggeri said. “ … The pace of recovery in China was slower than expected. That, coupled with a negative impact to our business in the Middle East, pressured our International segment as a whole. However, we continue to see these headwinds as transitory and remain committed to our long-term growth ambitions in the segment.”