Actions of Starbucks (NASDAQ:SBUX) plunged nearly 16% following a lackluster second-quarter financial results report. The stock is now down about 35% over the past year.
Let’s take a look at why Starbucks stock fell, what its turnaround plans are, and if now is the time to buy the stock.
Unrest in China and the United States
With the United States and China accounting for more than 60% of Starbucks locations worldwide, these two markets are the most important for the coffee shop operator. Unfortunately for the company, both markets experienced considerable weakness during the quarter.
In the United States, Starbucks saw its same store sales decrease of 3% compared to an increase of 12% a year ago. Traffic at its stores fell 7%, while average ticket prices rose 4%.
The company blamed weak U.S. results on a worsening economic outlook and extreme weather in parts of the country. Starbucks said its casual customers, in particular, were coming in less often. The increase in prices as well as the move towards more expensive cold drinks have contributed to increasing the average ticket price.
In China, same-store sales fell 11%, compared with a 3% rise a year ago. Traffic in its stores fell 4%, while the average ticket fell 8%. Starbucks became more promotional in China in the fourth quarter, when its average ticket price fell 9%. However, this contributed to a 21% increase in traffic. The increase in promotions and the drop in prices did not have the same impact in the first quarter of 2024.
Starbucks said that, like in the United States, casual customers in China visited its cafes less often. He explained that this was the result of macroeconomic weakness, competition and a return to more normal behavior after the market reopened last year.
Recovery plan
Given its poor results, Starbucks does not intend to sit idle; it has made efforts to help turn around its operations.
In the United States, the company will look to improve throughput by reducing wait times and improving product availability. Management said that currently the company is having difficulty meeting peak morning demand and that app customers often put items in their carts but do not complete their purchases due to long checkout times. waiting.
As a result, Starbucks is rolling out its equipment-driven siren system and tweaking how it’s used to expedite orders. The company is also investing in its Deep Brew artificial intelligence (AI) technology to both improve wait times and create more transparency around wait times, as well as making investments in the supply chain. supply.
Starbucks will also launch more innovative menu offerings, both beverages and food items, with a focus on coffee-based beverages. Additionally, the company is testing extended overnight hours, with delivery between 5 p.m. and 5 a.m. It’s also exploring better ways to connect with casual customers through its app, so those customers can see special offers.
In China, the company said it continues to play the long game. Its strategy remains to make technological investments to digitalize its stores, and…
