Starbucks points to weaker consumer as profit falls

Starbucks reported weaker than expected profits, pointing to lackluster conditions in China and consumer caution in the United States (SPENCER PLATT)
Starbucks reported weaker than expected profits, pointing to lackluster conditions in China and consumer caution in the United States (SPENCER PLATT)

Starbucks reported lower profits on falling sales on Tuesday as the coffee giant pointed to weakening consumer sentiment and lackluster conditions in China as factors behind an earnings miss.

The performance "did not meet our expectations," said Chief Executive Laxman Narasimhan, who also noted a wave of severe weather in the United States as a driver of the tepid results.

"We continue to feel the impact of a more cautious consumer, particularly with our more occasional customer and a deteriorating economic outlook has weighed on customer traffic and impact sales broadly across the industry," Narasimhan said on a conference call with analysts.

Profits were $772.4 million in the quarter ending March 31, down 15 percent from the year-ago period, while revenues fell two percent to $8.6 billion.

Comparable stories in North America fell three percent, while sinking by 11 percent in China.

Chief Financial Officer Rachel Ruggeri said the company had a "comprehensive" plan to right conditions after a "difficult" quarter.

Narasimhan said the chain was putting into service technologies to better inform consumers about the status of online orders.

Starbucks has taken note of a large number of cases where consumers begin digital orders and do not follow through with a transaction.

"Here lies opportunity," said Narasimhan, who aims to improve communication system in particular during the morning rush.

Shares of Starbucks fell about 10 percent in after-hours trading.

jmb/mdl