Starbucks Stock Tumbles On Q2 Earnings, CEO Says Progress Is Happening 'Below The Surface'

Starbucks Corp (NASDAQ:SBUX) shares are facing heavy selling pressure Wednesday morning after the company reported worse-than-expected results for the second quarter.

• Q2 Revenue: $8.76 billion, versus estimates of $8.86 billion

• Q2 Adjusted EPS: 41 cents, versus estimates of 50 cents

Second-quarter net revenue climbed 2% on a year-over-year basis, but global comparable store sales fell 1%, driven by a 2% decline in comparable transactions.

Comparable store sales were down 1% in North America and down 2% internationally. Starbucks noted that comparable store sales in China were flat in the quarter.

The coffee giant opened 213 net new stores in the quarter and had 40,789 total locations at quarter’s end.

Despite the soft headline numbers, CEO Brian Niccol provided optimistic commentary that turnaround plans are on track.

"My optimism has turned into confidence that our ‘Back to Starbucks' plan is the right strategy to turn the business around and to unlock opportunities ahead," Niccol said.

"Improving transaction comp in a tough consumer environment at our scale is a testament to the power of our brand and partners getting ‘Back to Starbucks.' We are on track and if anything, I see more opportunity than I imagined.”

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Analysts don’t appear to be quite so optimistic, with some cutting estimates in response to the company’s weak quarterly results.

TD Securities analyst Agnes Lim maintained Starbucks with a Buy rating, but lowered the price target from $102 to $90. Guggenheim analyst Gregory Francfort also cut estimates on Starbucks this week, citing rising competition from local brands and potential impacts from ongoing global trade tensions.

In an interview on CNBC’s “Squawk On The Street” Wednesday morning, Niccol reinforced the company’s turnaround plans and said a lot of the progress is happening “below the surface.”

“We’re taking a stage gate approach, where we’re going to first learn on it and then we’ll roll and scale it,” Niccol said.

The Starbucks CEO said the company is seeing a “great response” from customers where it’s testing some of its “Back to Starbucks” initiatives.

Other changes on the horizon include a revamp of the digital experience and an overhaul of the company’s rewards program, which had been acting more like a “coupon book” in the past, he said.

“In the near-term, the earnings will lag, but in the longer-term, my experience always has been, if you drive growth and do the right thing for the customer, our partner, the financial performance comes with it,” Niccol told CNBC.

SBUX Price Action: Starbucks shares were down 7.51% at $78.45 at the time of publication Wednesday, according to Benzinga Pro.

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