Starbucks cups are shown on a counter in Manhattan, New York, on February 16, 2022.
Carlo Allegri | Reuters
Starbucks reported preliminary quarterly results on Tuesday, revealing a decline in sales as the coffee chain works to implement a turnaround strategy.
“Our performance in the fourth quarter indicates the need for a fundamental change in our strategy to return to growth, and that’s exactly what we are doing with our ‘Back to Starbucks’ plan,” said CEO Brian Niccol in a statement.
Niccol stated that he will provide more details on the steps Starbucks is taking to revitalize the business during the company’s earnings call scheduled for October 30. The new CEO of the coffee chain aims to address the slowing demand for Starbucks’ beverages, starting with its largest market: the U.S.
According to Niccol, the company is already making significant changes to its marketing approach by refocusing on all customers, not just loyalty program members. He also mentioned plans to streamline the menu, address pricing issues, and ensure that all drinks are handed directly to customers, addressing common complaints from both customers and baristas.
“We believe that our challenges are solvable, and we have strong foundations to build upon,” Niccol stated in prepared remarks released on Tuesday.
The company’s preliminary net sales decreased by 3% to $9.1 billion, with preliminary adjusted earnings per share of 80 cents.
Analysts had expected the company to report earnings per share of $1.03 and revenue of $9.38 billion for the fiscal fourth quarter.
Following the announcement, the company’s shares dropped more than 3% in extended trading.
Declining Sales
Starbucks experienced a third consecutive quarter of declining same-store sales, with a 7% drop in this quarter marking the steepest decline since the Covid-19 pandemic.
The company attributed the soft sales to weaker demand in North America, where same-store sales fell by 6%. Despite increased investments in the business, such as more promotions in the mobile app and a wider range of products, traffic decreased by 10%.
In China, the company’s second-largest market, same-store sales plummeted by 14%. Starbucks cited increased competition in the country as a factor altering consumer behavior and impacting the company’s strategy.
Due to the recent CEO transition and the current state of the business, the company suspended its fiscal 2025 outlook.
Despite the challenging quarter, the company announced an increase in its dividend from 57 cents to 61 cents per share.
“We want to demonstrate our confidence in the business and provide some stability as we work on our turnaround,” said Chief Financial Officer Rachel Ruggeri in a statement.
Ruggeri mentioned that developing a strategy to revitalize the business will take time.
Challenges for Niccol
The release of the company’s preliminary results comes shortly after Niccol assumed the role of CEO of Starbucks. The transition followed two quarters of declining sales for the company and increased stakes from activist investors.
In the U.S., Starbucks has been losing occasional customers who are choosing to save money rather than spend on its beverages. The company’s business in China has also been struggling to recover post-pandemic, facing competition from local rivals and a more cautious consumer base.
Niccol, who previously served as CEO of Chipotle, plans to focus on revitalizing Starbucks’ struggling U.S. business. In an open letter during his first week on the job, he outlined four areas for improvement: the barista experience, morning service, cafes, and branding.
Niccol has been reorganizing the company’s executive team, with the recent appointment of former Chipotle executive Tressie Lieberman as global chief brand officer. Last month, Starbucks announced the retirement of North American CEO Michael Conway after just five months in the role. Niccol’s predecessor, Laxman Narasimhan, had appointed Conway before his departure in August.
As of Tuesday’s close, Starbucks’ shares have seen a 1% increase this year, with a market cap exceeding $109 billion.