Starbucks Tuesday released preliminary quarterly results which showed its sales have fallen again as the coffee chain attempts to recover.
“Our fourth quarter performance makes it clear that we need to fundamentally change our strategy in order to return to growth and that’s exactly what we’re doing with our ‘Back to Starbucks’ plan,” CEO Brian Niccol said in a statement. .
Niccol said he plans to share more details about the steps Starbucks is taking to turn around the business during the company’s earnings conference 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 United States
Already, the CEO has declared that 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 prices and ensure that all its drinks are delivered directly to customers. These three goals have been the biggest complaints from customers and baristas in recent years.
“We believe that our problems can be solved and that we have significant assets on which to build,” Niccol said in prepared remarks published on the company’s website 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 expected the company to report earnings per share of $1.03 and revenue of $9.38 billion for the fourth quarter.
The company’s shares fell more than 3% in extended trading following the announcement.
Declining sales
For the third quarter in a row, Starbucks’ same-store sales fell. The 7% drop in same-store sales this quarter marks the company’s biggest decline since the Covid-19 pandemic.
The company blamed weak sales on falling demand in North America. In its home market, same-store sales fell 6%. Traffic fell 10%, despite increased investments in the company, 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 fell 14%. The company attributed the decline to competition in the country, which it said is changing consumer behavior and changing the company’s market strategy.
The company also suspended its outlook for fiscal 2025, citing the recent CEO transition and “the current state of the business.”
Despite a dismal quarter, the company increased its dividend from 57 cents to 61 cents per share.
“We want to amplify our confidence in the company and provide certainty as we lead our turnaround,” Chief Financial Officer Rachel Ruggeri said in a statement.
Ruggeri added that the company is currently developing a plan to turn around the business, but creating a strategy will take time.
A challenge for Niccol
The company’s surprise announcement of preliminary results comes nearly two months after Niccol takes the helm of the coffee giant. The CEO transition follows two quarters of declining sales at Starbucks and several activist investors taking stakes in the company.
In the United States, the chain is losing its casual customers, who chose to save money instead of spending on its macchiatos and Refreshers. Starbucks’ business in China has also struggled to recover since the pandemic, and the rise of cheaper local rivals such as Luckin Coffee and a more cautious consumer have dampened 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 to a turnaround from its bouts with foodborne illnesses, invested in its digital business and made it a leading player in the sector, even during the pandemic.
To curb Starbucks’ declining sales, Niccol plans to turn first to the company’s struggling U.S. operations. In an open letter published during his first week on the job, he said he plans to focus on four areas of improvement: the barista experience, the morning service, its coffees and the company’s brand image.
Niccol also reshuffled the company’s management ranks. On Friday, the company announced that a former Chipotle executive, Tressie Lieberman, will join Starbucks as Global Brand Director, a newly created position. Last month, Starbucks announced that its North American CEO, Michael Conway, would retire after just five months in the role. Niccol’s predecessor, Laxman Narasimhan, 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 capitalization of over $109 billion.
