rewrite this title Starbucks (SBUX): A look at the challenges that continue to beleaguer the coffee giant | AlphaStreet

Shares of Starbucks Corporation (NASDAQ: SBUX) rose 2% on Thursday. The stock has dropped 9% over the past month. The company has faced its fair share of challenges during fiscal year 2024 and its hardships may not yet be over. The coffee giant has suspended its guidance for fiscal year 2025 as it works on reshaping its business to drive growth. Here’s a look at some of the challenges it has been facing:

Decline in traffic

Starbucks has been seeing a continued drop in traffic. During the fourth quarter of 2024, the company saw traffic decline across all its channels and dayparts. It witnessed a slowdown in the frequency of visits from both its Starbucks Rewards members as well as non-members. Although SR membership grew 4% year-over-year in Q4, it remained flat sequentially as new product offerings and promotions failed to attract customers.

The decline in traffic negatively impacted comparable store sales. In Q4, Starbucks’ comparable store sales decreased 7% year-over-year, with an 8% drop in transactions and a 2% gain in average ticket. In the US, comparable store sales fell 6%, driven by a 10% decline in transactions, partly offset by a 4% increase in average ticket mainly from pricing.

Decrease in revenue and profits

SBUX’s revenue and profits have continued to decline over the past few quarters. In Q4 2024, consolidated revenue decreased 3% year-over-year to $9.1 billion, mainly due to a decrease in comparable store sales. Adjusted earnings per share decreased 25% to $0.80. The company’s operating margin fell 380 basis points to 14.4% in Q4, mainly due to higher investments in wages and benefits as well as higher promotions.

Headwinds in China

Starbucks continues to face a challenging environment in China, its second largest market. The company’s performance in this region has been pressured by heavy competition and macroeconomic headwinds that have impacted consumer spending.

In Q4, comparable store sales in China declined 14%, driven by an 8% decrease in average ticket and a 6% drop in comparable transactions. Although the coffee giant added 2.2 million new members to reach 23.5 million SR Active members in this market during the quarter, comps were negatively impacted by a decline in non-SR member traffic, higher discounts due to heavy promotions, and lower sales of high-ticket items impacted by consumer sentiment.

Starbucks is working on driving growth in its business through various measures such as menu changes, pricing, marketing, and investments in improving its digital capabilities. It is also exploring growth opportunities across international markets beyond China. The company believes these measures will yield benefits over time.