STARBUCKS pulled guidance for 2025 after sales plunged for a third consecutive quarter, calling attention to the scope of the problems facing new chief executive officer Brian Niccol.
The coffee chain reported a 7 per cent decline in same-store sales in the fourth quarter ended Sep 29, according to a preliminary earnings release on Tuesday (Oct 22). The weakness was especially evident in the US, where transactions were down 10 per cent from the prior year, and in China, where comparable sales fell 14 per cent.
Starbucks said withdrawing guidance for the current fiscal year will give Niccol an opportunity to assess the business and solidify a turnaround plan. Since taking over the top post on Sep 9, he’s been rearranging the leadership ranks and has unveiled the broad outline of a plan to stoke growth that includes making cafes more inviting and speeding up morning service.
“I think this turnaround will take longer than some investors had expected,” said Brian Yarbrough, an analyst at Edward Jones. “There’s going to be some tough, tough quarters moving forward.”
The fourth-quarter sales decline was twice as steep as analysts had expected and the biggest quarterly drop in four years. Starbucks said that a push to launch more products and offer a plethora of promotions failed to bring more customers into its stores.
Starbucks shares fell as much as 9.1 per cent in extended trading before paring their decline. The stock had risen less than 1 per cent this year, compared with a 23 per cent gain in the S&P 500 Index.
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In a video posted to Starbucks website on Tuesday, Niccol said the company needs to “fundamentally change our recent strategy” to return to growth. He said the chain will simplify its “overly complex” menu and look into its prices. He also said the company will revamp marketing, including by highlighting handcrafted products. Starbucks will also address staffing in its stores, he said.
It’s not uncommon for companies to wipe the slate clean for new executives by resetting investor expectations. Nike, facing one of its roughest patches in decades, withdrew its sales guidance earlier this month ahead of the arrival of new CEO Elliott Hill.
Niccol’s predecessor at Starbucks, Laxman Narasimhan, had to contend with aggressive growth goals. The targets proved too lofty as consumers started cutting back on Starbucks visits and the company became ensnared in boycotts, contributing to Narasimhan’s ouster.
Yarbrough said withdrawing guidance “clears the decks” for Niccol but “you just don’t know where the numbers could go in the interim”. He expects Niccol will probably get a “very long leash” at Starbucks given his prior success at Taco Bell and Chipotle.
Starbucks will report full results on Oct 30. BLOOMBERG
