Starbucks' new chief executive Brian Niccol is laying out his turnaround plan for the troubled coffee giant facing rising competition, a boycott, and flagging sales that posted a worse-than-expected drop in the just-ended quarter. Investments made by Starbucks to drive US sales, including increased promotions within its app, failed to attract the desired number of customers, as disclosed in the company's preliminary fiscal fourth-quarter report on Tuesday.
Notably, comparable sales decreased by 6% in the US and a stark 14% in China, reflecting the effects of intensified competition and a "soft macro environment" impacting consumer behavior. Total comparable sales experienced a 7% decline, which fell short of the consensus forecast by Capital IQ, which had anticipated only a 6.5% drop. In response to this performance, Niccol emphasized the necessity for a fundamental strategic shift in order to restore growth, and this forms the crux of the 'Back to Starbucks' plan that he introduced last month.
This initiative aims to enhance US sales through an emphasis on customer service and investing in technology. Further details are expected to emerge during the company's upcoming earnings call next Wednesday. Analysts at UBS, including Dennis Geiger, expressed optimism regarding CEO Niccol’s approach, stating, "We expect CEO Niccol will construct a comprehensive plan to better address recent challenges and lackluster performance by improving the customer experience across multiple initiatives." They hinted at a potential improvement in US sales trends during the fiscal first quarter, owing in part to easier comparisons and the diminishing impact of boycotts within the US. The boycott against Starbucks arose from perceptions of the company's support for Israel amid its ongoing conflicts with Hamas in Gaza.
However, the company asserted in December that it "has never contributed to any government or military operation in any way." Moreover, Starbucks has encountered backlash regarding its response to employees attempting to unionize. Earlier this year, Starbucks and the labor group Workers United announced their intent to engage in discussions on a "foundational framework." For the fiscal fourth quarter, Starbucks reported a 24% year-on-year decline in earnings, reporting $0.80 per share on a non-GAAP basis, which is below the $0.88 consensus from Capital IQ.
Revenue also fell by 3% to $9.1 billion, while analysts on Wall Street currently project $9.07 billion. Compounding these challenges, Starbucks has put a hold on its guidance for fiscal 2025, citing the transition to a new CEO and the "current state of the business." Analysts like Deutsche Bank’s Lauren Silberman noted, "We expect Niccol to expand on his initial observations and priorities on next week's call, with a more detailed turnaround strategy likely in early 2025.
We expect bulls to largely look past near-term noise and focus on SBUX's long-term earnings power, though this quarter is unlikely to mitigate bear concerns regarding the timing of a turnaround." On Wednesday, shares of Starbucks fell to their lowest point since September 11 before recovering slightly, although they continued to trade weakly.
In a show of confidence in its long-term growth, the latte maker increased its quarterly dividend from $0.57 to $0.61 per share. Financials show a price of $96.71, a minor change of -0.11, translating to a percent change of -0.11. The future appears uncertain for Starbucks, but under Niccol's guidance, the company is poised to seek a resurgence in a challenging market landscape..