Starbucks CEO pledges to fundamentally change strategy as sales fall for third straight quarter

Starbucks CEO pledges to fundamentally change strategy as sales fall for third straight quarter

Business


Brian Niccol speaking on CNBC’s “Squawk Box” on Oct. 30, 2018.

Anjali Sundaram | CNBC

Starbucks on Wednesday reported quarterly earnings and revenue that missed analysts’ expectations as sales in the U.S. and China, its two biggest markets, disappointed.

The company previously released a preliminary report of its quarterly results on Oct. 22 and announced it was suspending its fiscal 2025 outlook. 

This report marks the first under CEO Brian Niccol, who joined the company on Sept. 9 to revive the floundering business. 

“It is clear we need to fundamentally change our strategy to win back customers,” CEO Brian Niccol said in a statement. “We have a clear plan and are moving quickly to return Starbucks to growth.”

Niccol outlined a multipart plan to improve the company’s U.S. business immediately. Many of the steps address a new goal for Starbucks: hand delivering a customer’s drink in under four minutes. Roughly half of current transactions are within that threshold, according to Niccol.

Cafes will bring back the condiment bars that disappeared behind counters during the pandemic, get rid of extra charges for milk alternatives and cut back menus. Niccol also told investors that he wants to bring “order to mobile order and pay” and improve restaurant staffing.

“I’m very optimistic, despite the near-term challenges,” Niccol said. “I believe we have significant strengths, a strong, enduring brand. We have a clear plan. We’re going to be moving quickly.”

For now, the strategy is focused on North America. Niccol said he’d need to spend time in China to better understand the company’s operations and the market before deciding how to revive sales there.

In fiscal year 2025, Starbucks also plans to cut back on new cafes and renovations. CFO Rachel Ruggeri said the shift is to “accommodate a redesign” across its locations and free up capital to spend on the broader turnaround.

Shares of the company were flat in extended trading on Wednesday.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

  • Earnings per share: 80 cents vs. $1.03 expected
  • Revenue: $9.07 billion vs. $9.36 billion expected

Starbucks reported fiscal fourth-quarter net income attributable to the company of $909.3 million, or 80 cents per share, down from $1.22 billion, or $1.06 per share, a year earlier.

Net sales dropped 3% to $9.07 billion. 

The company’s global same-store sales fell 7%, fueled by weak demand in the U.S. and China. Traffic to its stores worldwide fell 8% during the quarter.

The company’s U.S. restaurants reported same-store sales declines of 6%, fueled by a 10% tumble in traffic.

In China, the company’s same-store sales plummeted 14% as both traffic and average ticket fell. Starbucks has been facing greater competition from local rivals, such as Luckin Coffee, which can undercut the company’s prices.

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