Starbucks cups are pictured on a counter in Manhattan, New York, on Feb. 16, 2022.
Carlo Allegri | Reuters
Starbucks on Tuesday posted preliminary quarterly results that showed its sales fell again as the coffee chain tries to execute a turnaround.
“Our fourth quarter performance makes it clear that we need to fundamentally change our strategy so we can get back to growth and that’s exactly what we are doing with our ‘Back to Starbucks’ plan,” CEO Brian Niccol said in a statement.
Niccol said he plans to share more details on the steps Starbucks is taking to turn around the business on the company’s earnings call, scheduled for Oct. 30. The coffee chain’s new CEO aims to reverse slowing demand for Starbucks’ drinks, starting with its largest market: the U.S.
Already, the CEO said the company is “fundamentally changing” its marketing by refocusing on all of its customers, not just members of its loyalty program. He added that Starbucks plans to simplify its “overly complex menu,” fix its pricing and make sure all of its drinks are handed directly to customers. All three of those goals have been top complaints from customers and baristas in recent years.
“We believe that our problems are very fixable and that we have significant strengths to build on,” Niccol said in prepared remarks released on the company’s website on Tuesday.
The company’s preliminary net sales fell 3% to $9.1 billion. It reported preliminary adjusted earnings per share of 80 cents.
Analysts surveyed by LSEG were expecting the company to report fiscal fourth-quarter earnings per share of $1.03 and revenue of $9.38 billion.
Shares of the company fell more than 3% in extended trading on the announcement.
Slumping sales
For the third consecutive quarter, Starbucks’ same-store sales fell. This quarter’s 7% decline in same-store sales was the company’s steepest drop since the Covid-19 pandemic.
The company blamed its soft sales on weaker demand in North America. In its home market, its same-store sales decreased 6%. Traffic tumbled 10%, despite increased investments in the business, such as more frequent promotions in its mobile app and an expanded range of product offerings.
In China, its second-largest market, same-store sales plummeted 14%. The company attributed the decline to competition in the country, which it said is altering consumer behavior and changing the company’s strategy for the market.
The company also suspended its fiscal 2025 outlook, citing the recent CEO transition and the “current state of the business.”
Despite the dismal quarter, the company increased its dividend from 57 cents to 61 cents per share.
“We want to amplify our confidence in the business, and provide some certainty as we drive our turnaround,” Chief Financial Officer Rachel Ruggeri said in a statement.
Ruggeri added that the company is developing a plan to turn around the business, but creating a strategy will take time.
A challenge for Niccol
The surprise announcement of the company’s preliminary results comes nearly two months ago after Niccol took the helm of the coffee giant. The CEO transition followed two quarters of falling sales for Starbucks and several activist investors building stakes in the company.
In the U.S., the chain has been losing its occasional customers, who have opted to save money instead of spending on its macchiatos and Refreshers. Starbucks’ business in China has also been struggling to recover since the pandemic, and the rise of cheaper local rivals such as Luckin Coffee and a more cautious consumer have dented sales in recent months.
Niccol joined Starbucks after six years as CEO of Chipotle. During his tenure at the fast-casual chain, he led the company through a turnaround after its foodborne illness crises, invested in its digital business and turned it into a top industry performer, even during the pandemic.
To curb Starbucks’ sales slump, Niccol plans to turn first to the company’s struggling U.S. business. In an open letter released during his first week on the job, he said he plans to focus on four areas of improvement: the barista experience, morning service, its cafes and the company’s branding.
Niccol has also been reshuffling the company’s executive ranks. On Friday, the company announced a former Chipotle executive, Tressie Lieberman, will be joining Starbucks as its global chief brand officer, a newly created position. Last month, Starbucks said its North American CEO Michael Conway would retire after just five months in the role. Niccol’s predecessor Laxman Narasimhan had appointed Conway before his ouster in August.
Shares of Starbucks are up 1% this year, as of Tuesday’s close. The company has a market cap of more than $109 billion.
