On Tuesday, Starbucks revealed a decline in same-store sales for the fourth consecutive quarter, despite surpassing Wall Street’s expectations with its earnings and revenues. The coffee giant has initiated a turnaround strategy last quarter to breathe life into its struggling U.S. operations over the past year.
“We acknowledge there’s room for improvement, but we’re encouraged by our progress and confident we’re on the right path,” CEO Brian Niccol remarked in a video statement posted on Starbucks’ website Tuesday afternoon.
Niccol mentioned the positive feedback the company has received from its early initiatives, such as eliminating additional charges for non-dairy milk options, redirecting its marketing efforts towards coffee, and aiming to reduce its food and beverage menu by 30% by the close of fiscal 2025.
Here’s a snapshot of how Starbucks performed against Wall Street predictions, based on an analyst survey by LSEG:
– Earnings per share: 69 cents versus 67 cents expected
– Revenue: $9.4 billion versus $9.31 billion expected
For the fiscal first quarter, Starbucks reported a net income of $780.8 million, equating to 69 cents per share, down from $1.02 billion, or 90 cents per share, the previous year. Their net sales remained steady at $9.4 billion compared to the year before.
Same-store sales at Starbucks dropped by 4%, driven by a 6% decrease in store visits. Analyst estimates from StreetAccount had anticipated a steeper decline of 5.5%. Remarkably, both U.S. and international locations performed better than expected.
In the U.S., same-store sales fell 4% with an 8% reduction in foot traffic. Under Niccol, who assumed the role in September, the focus has been on revitalizing the U.S. business by returning to core values centered on coffee and customer experience.
Starbucks has also trimmed back its promotions, resulting in a 40% decrease in discounted transactions during the quarter. Niccol credits this pullback for bolstering the chain’s sales throughout the period.
Internationally, same-store sales also experienced a 4% decline. In China, its second-largest market, same-store sales dropped by 6%, mainly due to a 4% decrease in the average ticket. To compete with lower-priced rivals like Luckin Coffee, Starbucks has been more aggressive with discounts in China.
Niccol, during his first visit to Chinese stores last week, expressed the company’s intent to explore strategic partnerships to expand its presence there. “We are actively working through these insights and will share further developments,” he stated during the company’s conference call.
In October, Starbucks put a pause on its fiscal 2025 forecast, with the ongoing turnaround efforts cited as the reason. Additionally, Tuesday’s call saw the backing off from a previously announced target of $4 billion in supply-chain savings by 2028. This target was introduced by Niccol’s predecessor, Laxman Narasimhan, in April 2024, shortly before sales began to wane and prior to his departure from the company.
Starbucks is also planning to scale back on new store openings and refurbishments in fiscal 2025 to allocate funds towards its revitalization efforts. However, Niccol envisions robust demand for additional cafes in the future.
“In the U.S. alone, we’re optimistic about potentially doubling our store count while enhancing our portfolio’s overall health. This will be achieved through an effective store renovation program, the construction of new outlets, and strategic closures,” Niccol explained.
Efforts to improve service speed include scheduling more staff, streamlining back-of-house operations, and simplifying baristas’ tasks. For instance, Starbucks plans to prioritize introducing its Siren equipment in its busiest locations. This new setup features a custom ice dispenser, a milk-dispensing system, and faster blenders, enabling baristas to craft drinks more swiftly.
Testing is underway for a new algorithm designed to optimize the order in which baristas prepare mobile and in-store beverages. If successful, this could help alleviate the issue of crowded pickup counters, a source of frustration for both customers and staff.
Niccol also has restructuring plans for Starbucks’ corporate framework, including dividing the role of North American president into two separate roles. On Tuesday, the company announced it had enlisted two former Taco Bell executives, Niccol’s prior place of employment before Chipotle.
Looking ahead to early March, the company intends to carry out workforce reductions, though Starbucks has not disclosed the exact number of positions that will be affected.
