Why Starbucks' Shares Are Falling Despite Recording All-Time High Revenue Of $9.2 Billion

Coffee giant Starbucks on Tuesday announced its highest ever quarterly revenue of $9.2 billion, thanks to a strong recovery in China. But Starbucks' shares are still on the decline, both before and after the record revenue was announced.

Why Starbucks' Shares Fell Despite Record Revenue

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The reason? Despite the record-high revenue, the coffee giant still missed analyst estimates as demand fell short in the U.S.

The company reported $1 in earnings per share on revenue of $9.2 billion¡ªup 12% year over year¡ªbeating analysts¡¯ profit expectations of $0.95, as price increases helped beef up margins, but missing revenue projections averaging $9.3 billion, according to FactSet, a Forbes report mentioned.

Starbucks shares fell 1% in after-hours trading immediately after the release yesterday and have been down more than 7% in the past six months but are still up 20% in the past year.

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Same-store sales¡ªrevenues from stores open more than one year¡ªjumped 10%, as U.S. sales were up 7% and international sales climbed 24%¡ªmostly driven by a whopping 46% increase in China. For the past several quarters, Starbucks has tackled nationwide labour strains and inflationary pressure on ingredients, along with operational challenges in China, its second-largest market.

As per a Bloomberg report, Starbucks said it expects earnings per share to expand by 16% to 17% in its fiscal 2023 year, while it had previously forecast growth on the low end of its 15% to 20% long-term goal. The coffee giant's Chief Financial Officer, Rachel Ruggeri, said that Starbucks is "pleased with the consistency of demand" in that market, fueled by new products, more stores, and other factors.

Also Read: How Coffee Giant Starbucks Also Works As An 'Unregulated' Bank

All-Time High Revenue Under New CEO Laxman Narasimhan

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The record-high revenue is the first quarterly earnings release under new CEO Laxman Narasimhan, who officially took charge of the coffee giant in April this year, succeeding billionaire Howard Schultz as Starbucks CEO.

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In a bid to boost long-term growth, Starbucks launched a 3-year reinvention plan last September, saying it would double down on automation, cater to younger customers¡¯ elaborate demands, and drive up sales in the Chinese market. Though the same-store sales increase of 7% in the U.S. came under the consensus estimates of 8.4%, persistent consumer demand in the U.S.¡ªdespite a 6% increase in prices over the year¡ªmay further contribute to solid domestic sales.

In a recent note, Bank of America analysts said Starbucks is viewed as having the ¡°lowest price and value for money,¡± which suggests ¡°its price points remain competitive¡± and is ¡°seemingly in defiance of conventional wisdom.¡± The coffee giant also reported a 15% gain in active loyalty membership from the prior period.

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