Starbucks cups are pictured on a counter in Manhattan, New York, on February 16, 2022.
Carlo Allegri | Reuters
Starbucks on Tuesday released preliminary quarterly results which showed its sales falling again as the coffee chain tries to stage a turnaround.
“Our performance in the fourth quarter makes it clear that we need to fundamentally change our strategy so we can return to growth, and that’s exactly what we’re doing with the ‘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 the business around at the company’s earnings call, scheduled for Oct. 30. The coffee chain’s new CEO aims to reverse slowing demand for Starbucks’ drinks, starting in its biggest market: the US
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 the “overcomplicated menu,” set prices and ensure that all of its drinks are delivered directly to customers. All three of these targets have been the top complaints from customers and baristas in recent years.
“We believe our problems are very solvable and that we have significant strengths to leverage,” Niccol said ready remarks released on the company’s website on Tuesday.
The company’s preliminary net sales fell 3 percent to $9.1 billion. It reported preliminary adjusted earnings per share of 80 cents.
Analysts surveyed by LSEG had 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 on the announcement.
Falling sales
For the third quarter in a row, Starbucks same-store sales declined. This quarter’s 7% decline in same-store sales was the company’s steepest drop since the Covid-19 pandemic.
The company blamed its weak sales on weaker demand in North America. In its home market, same-store sales fell 6%. Traffic fell 10%, despite increased investment in the business, such as more frequent promotions on its mobile app and an expanded range of product offerings.
In China, its second largest market, same-store sales plunged 14%. The company attributed the decline to competition in the country, which it said is changing consumer behavior and changing the company’s go-to-market strategy.
The company also suspended its outlook for fiscal 2025, citing the recent CEO transition and the “current state of the business.”
Despite the dismal quarter, the company raised its dividend from 57 cents to 61 cents per share.
“We want to reinforce our confidence in the business and provide some certainty as we lead our turnaround,” Chief Financial Officer Rachel Ruggeri said in a statement.
Ruggeri added that the company is developing a plan to turn the business around, but creating a strategy will take time.
Challenge for Nicole
The surprise announcement of the company’s preliminary results comes almost two months ago Nicole took the helm of the coffee giant. The CEO’s transition followed two quarters of declining sales for Starbucks and several activist investors building stakes in the company.
In the US, the chain is losing casual customers who chose to save money instead of spending on its macchiatos and Refreshers. Starbucks’ China business is also struggling to recover from the pandemic, and the rise of cheaper local rivals such as Luckin Coffee and a more cautious consumer have weighed on sales in recent months.
Nicole joined Starbucks after six years as CEO Chipotle. During his tenure at the fast-casual chain, he led the company through a recovery from foodborne illness crises, invested in its digital business and turned it into an industry-leading performer, even during the pandemic.
To stem Starbucks’ declining sales, 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, coffee shops and company branding.
Niccol has also reshuffled the company’s executive ranks. On Friday, the company announced that a former Chipotle executive, Tressie Lieberman, will join Starbucks as global chief brand officer, a new position. Last month, Starbucks said its North American CEO Michael Conway would step down 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 capitalization of over $109 billion.