Starbucks Corp suspends its forecast through the next fiscal year as new CEO Brian Niccol looks to turn around the struggling coffee chain with falling demand for its expensive drinks. The coffee giant reported preliminary Q4 results, saying same-store sales, net revenue, and profit declined, weighed down by weak demand in the U.S.
Starbucks stocks fell about 4% in after-hours trading. Share price of Starbucks has gained nearly 28% since the company named Niccol as CEO in early August.
Starbucks CEO suspends forecast
Niccol, who was named as the CEO of Starbucks in a surprise move, said, “It’s clear we need to fundamentally change our strategy so we can get back to growth and that’s exactly what we are doing with our ‘Back to Starbucks’ plan.”
He said Starbucks would simplify its “overly complex menu, fix our pricing architecture.”
Why Starbucks forecast pulled?
The coffee giant, Starbucks now expects comparable sales to decline by 6% in the U.S. and 14% in China for the Q4 ended on September 29. Suspending annual outlook for the fiscal year that will end in September 2025.
“Despite our heightened investments, we were unable to change the trajectory of our traffic decline,” said Chief Financial Officer Rachel Ruggeri. “We are developing a plan to turn around our business, but it will take time.”
Still, Starbucks increased its quarterly dividend to 61 cents from 57 cents per share, to boost investor confidence in the turnaround plan, Ruggeri said.
Starbucks sales
Starbucks preliminary net sales fell 3% to $9.1 billion. It reported preliminary adjusted earnings per share of 80 cents.
Analysts surveyed by LSEG were expecting the company to report fiscal fourth-quarter earnings per share of $1.03 and revenue of $9.38 billion.
Decreased traffic
The company’s rewards program did not help improve customer traffic. As part of the turnaround plan, Niccol said the company aimed to change its marketing efforts, and shift focus to all customers and not just “Starbucks Rewards” members.
“While we remain optimistic that Starbucks can return to positive comparable sale as fiscal 2025 progresses under Niccol’s leadership, we suspect a reality check is needed on the timeline to reinvigorate profitability,” William Blair analyst Sharon Zackfia said.
Starbucks turnaround
“We suspect multiple avenues of attack (by Niccol) are likely, including increasing labor hours at stores and reducing the frequency of limited-time promotions.”
At Starbucks, Niccol took over from Laxman Narasimhan, inheriting several challenges at the coffee giant that has been under pressure from an activist investor to improve its business.
Competition for Starbucks
The coffee chain is also suffering from increased competition and weak demand in two of its top markets, the U.S. and China.
Niccol, in his first address as CEO, said last month he would look to “reestablish the brand as the community coffeehouse” in the U.S. as he laid out his plan for the next 100 days.
Starbucks still plans to hold its scheduled Q4 earnings conference call on October 30.
Starbucks’ stock
Share price of Starbucks was $92.80 down to about 4.15% after hours. Stock are up 1% this year, as of Tuesday’s close. The company has a market cap of more than $109 billion.
