Starbucks Corporation 2QFY24: Could be Better…

May 8, 2024 | Insights, Restaurant Research

Starbucks reported that it continues to feel the impact of a more cautious consumer, particularly as it relates to occasional customer visits during the afternoons & evenings. 2QFY24 results further reflected a deteriorating economic outlook, weak industry traffic & bad weather. Going forward, Starbucks will seek to offer more coffee variety & value to bolster its occasional customer business while seeking to add peak AM capacity.

Big Picture

  • Starbucks’ morning daypart drives half of its business, and the goal is to provide distinctive coffee & a great experience while building interest with new coffee innovations sufficient to convert occasional customers to Starbucks Rewards members.
  • However, management reported a mid-teens percent “order in completion rate” on its app during the quarter as Starbucks Rewards members (who drive 60%+ of its morning business) put items into their cart but failed to complete their order citing long wait times or product unavailability.
  • Plans to drive growth: expand capacity to address unmet demand across all dayparts, but particularly in the morning; launch exciting & relevant new products while maintaining a focus on core coffee forward offerings; and provide more value for its occasional & non-Starbucks Rewards customers.
  • $600MM will be invested over the next 3 years to further digitize its stores & better target customers in more personalized ways (including the installation of digital menu boards).
  • Delivery grew double digits during the quarter.
  • Starbucks reported more families & kids visiting on the weekends.

Revenue Trends

  • 2QFY24 revenue declined -1% y/y, reflecting a -4% drop in global comps (including -11% in China).
  • Its U.S. company-operated business posted a -3% y/y comp decline, driven by a -7% decrease in transactions. Partially offsetting this traffic decline was a +4% increase in average ticket, reflecting higher prices as well as a continued mix shift into cold beverages (63% of beverage sales during the quarter were cold, up +1% y/y) with help from its Iced Lavender Matcha Tea Latte (strongest offering ever).
  • Mobile order & pay drove 31% of all transactions in the quarter & its Starbucks Rewards membership grew +6% y/y to 33MM.

Margin Trends

  • 2QFY24 global operating margin contracted by -1.4% y/y to 12.8%, primarily driven by: sales deleverage; partner wages & benefit investments; and promotional activities. Margins benefited from price increases & in-store operational efficiencies which drove a 1.5% cost savings during the quarter (part of $3B in total expected savings through FY26).

FY24 Outlook

  • Revised FY24 guidance: global revenue growth of low single digits (down from +7% to +10% previously); global & U.S. comps of low single-digit decline to flat (down from +4% to +6% previously); U.S. store count growth of +4%; and flat operating margin growth (down from the previous expectation of progressive expansion).

Starbucks 2Q24 Financials

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