In a disappointing quarter for Starbucks (SBUX), the coffee giant fell short of expectations across the board, reporting lower-than-expected revenue, earnings, and same-store sales growth. The company faced challenges as customers reduced their visits and scaled back on the size of their orders.

CEO Laxman Narasimhan acknowledged the tough environment, stating that these Q2 results do not reflect the strength of the brand, capabilities, or future opportunities. This marks Starbucks' first quarterly sales decline since 2020 when the industry was heavily affected by COVID-19 shutdowns.

During the second quarter, revenue dropped by 2% compared to the previous year, amounting to $8.6 billion. Adjusted earnings per share also decreased by 8%, reaching $0.68. Global same-store sales experienced a 4% decline, driven by a 6% drop in transactions, partially offset by a 2% increase in average ticket size.

Following the earnings announcement, Starbucks' shares fell over 10% in after-hours trading. The company had attempted to attract customers with afternoon promotions and new offerings like Lavender Lattes and Spicy Refreshers, but these efforts did not have a significant impact.

In North America and the US, same-store sales declined by 3%, primarily due to a 7% decrease in foot traffic. However, there was a 4% increase in the average ticket size. Internationally, same-store sales dropped by 6%, with a 3% fall in foot traffic and ticket size. China experienced the greatest decline, with same-store sales down by 11%, foot traffic down by 8%, and average ticket size down by 4%. Notably, the US and China represent 61% of Starbucks' store portfolio.

Another headwind for the company during the quarter was the conflict in the Middle East, which impacted operations. Narasimhan expressed concerns about ongoing events and misinformation spread about the company in a memo circulated internally in mid-December.

Despite the challenging quarter, CFO Rachel Ruggeri emphasized that the company had learned from underperformance and had a comprehensive roadmap of actions to move forward. Starbucks plans to provide further details about its 2024 outlook during a company call scheduled for Tuesday afternoon.

In the previous quarter, the company had already revised its fiscal 2024 growth expectations with revenue projected to grow within a range of 7% to 10%, down from the previous range of 10% to 12%. Additionally, global and US same-store sales were expected to increase by 4% to 6%, down from the previous range of 5% to 7%. China's same-store sales growth was anticipated to be in the low single digits for the remainder of the year, a decrease from the previous range of 4% to 6%.

According to Bloomberg consensus estimates, Starbucks reported adjusted earnings per share of $0.68 compared to Wall Street's expectation of $0.80. Additionally, revenue amounted to $8.56 billion, falling short of the estimated $9.13 billion. Same-store sales growth was reported at -4%, significantly lower than the anticipated 1.46%.

The disappointing performance in Q2 serves as a reminder of the challenges faced by Starbucks and the need to navigate evolving consumer behaviors and market conditions. The company remains focused on implementing a strategic plan to drive growth and rebound from the recent setbacks.