By Heather Haddon
Starbucks’s sales are slowing — and it is fighting back by giving customers deals.
The world’s largest coffee chain said it is battling challenges in the U.S. and China, as competition from rivals offering promotions grew in recent months and customers reduced visits.
Starbucks Tuesday reduced its full-year forecast for revenue and same-store sales growth, saying January sales were softer than expected and that improvements will take time. The company maintained its earnings growth outlook for the year.
Chief Executive Laxman Narasimhan said on a Tuesday investor call that lower sales in its Middle East stores hurt its performance. Occasional U.S. Starbucks customers also purchased beverages less frequently in the afternoon during the quarter, cutting into sales.
“There was an impact in the quarter, and it will take some time to normalize,” Narasimhan said.
Starbucks reported that over the three months ended Dec. 31, its global same-store sales grew by 5%, down from the previous quarter and below analysts’ expectations.
Starbucks shares climbed 4.2% to $98.03 in after-hours trading. The shares were down 13% over the last 12 months as of Tuesday’s close, while the S&P 500 restaurant subindex gained 7% during the same period.
Third-party data analyzing credit-card transactions and food traffic has shown a slowdown in Starbucks’s U.S. business at the end of 2023 compared with late 2022. Wall Street analysts had lowered expectations for Starbucks’s U.S. business leading into the chain’s earnings report, pointing to increased competition, skittish consumers and negative publicity buffeting the chain in recent months.
Starbucks, along with other U.S. restaurant companies, has become ensnared in the polarizing Israel-Hamas conflict, with accusations that they favor one side over the other leading to vandalism, social media campaigns and boycott calls. Starbucks’s Narasimhan has said protesters had the wrong impression of the company and its beliefs, and denounced violence in a company letter in December.
Starbucks has issued a slew of promotions in recent months to try to lure customers back, such as $3 Thursdays and buy-one, get-one offers on weekends. The promotions have at times contributed to long lines and customer frustrations, baristas and store managers said.
Narasimhan said the chain is targeting deals to loyalty members, and its efforts are starting to pay off with more purchases.
In China, Narasimhan said the company is hoping to improve its business by offering more beverages tailored to the market and pushing into small cities in the country.
Starbucks said its U.S. stores are operating more efficiently and that barista turnover is dropping. The company is working to improve its app’s accuracy about when a beverage is ready.
“We have more work to do but we are proud of the progress we have made,” Narasimhan said.
The Seattle company said it generated a record $9.4 billion in sales for its fiscal first quarter, up 8% from the prior-year period but missing analysts’ expectations of $9.6 billion. Earnings were 90 cents a share when accounting for one-time items. Analysts polled by FactSet expected 93 cents a share.
Starbucks reported quarterly net income of $1 billion, up 20% from $855 million in the same period a year earlier. Same-store sales in its China market increased 10%, below analysts’ expectations. The chain said that transactions at Chinese stores grew compared with last year, though average spending per order dropped.
U.S. same-store sales grew 5%, with domestic transactions and average spending per order up slightly.
Starbucks is the first major U.S. restaurant chain to report during this earnings period. Investors are monitoring how Americans are changing their spending as inflation has cooled, and the economy could be heading toward a soft landing.
Write to Heather Haddon at heather.haddon@wsj.com