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Sales trends at Starbucks (SBUX) are in need of an energy boost as revenue and global comparable store sales both fell on a yr/yr basis in Q2, down 1.8% and 4%, respectively, badly missing analysts' expectations. Coming off a disappointing Q1 earnings report in late January, the stock was already mired in slump, but shares are really getting roasted today as SBUX missed Q2 estimates and lowered its FY24 guidance across the board.

• A more cost-conscious consumer is at the heart of SBUX's struggles. Last quarter, the company noted how misconceptions about its stance on the conflict in the Middle East hurt its sales, but now it's evident that the issues are deeper and more widespread. In each of the company's geographic markets, comps declined on a yr/yr basis, including a 3% drop in North America and U.S., and an 11% decrease in China. 
• CEO Laxman Narasimhan specifically identified "occasional customers" as a point of weakness, adding that these customers are visiting stores less often. On that note, traffic was down by 7% in North America and U.S., and down by 4% in China, SBUX's second largest market. The declines came even as SBUX ramped up promotions and added new menu items in the U.S., such as Lavender Lattes, further highlighting how challenging the environment has become.
• In China, the economic recovery coming out of the pandemic has been slower than SBUX anticipated. Fierce competition, including from Luckin Coffee, which has over 13,000 stores in China, is adding to the difficulties.
• Unfortunately, these challenges aren't fading away anytime soon, as reflected in SBUX's downgraded outlook for the year. After cutting its FY24 revenue growth guidance lower last quarter to +7-10% from +10-12%, SBUX now expects low-single-digit growth with global and U.S. comps of flat to down low-single-digits. The news isn't much better for EPS, which SBUX anticipates being flat to up low-single-digits, down from its prior forecast for growth of 15-20%.
• The silver lining is that SBUX is confident that it can turn its sluggish sales around. To do so, the company will sharpen its focus on improving its digital order fulfillment during peak hours. Mr. Narasimhan stated that many digital orders are not being completed due to long wait times, so improving operational efficiency will be a point of emphasis. Additionally, SBUX plans to launch more product innovations this summer to draw in more occasional customers and new customers. Simultaneously, more in-app promotions will be offered to its loyalty membership base of nearly 33.0 mln members.

The main takeaway is that persistent inflation has caused many consumers to cut back on discretionary spending, and an easy place to cut back is on those extra drinks that were purchased during the week. This has proven to be a difficult hurdle to overcome, but SBUX has a sound strategy in place to help kickstart its sleepy sales trends.