Starbucks has reported its third consecutive quarter of declining revenue, prompting questions about the company's future direction. In its preliminary report for the fourth fiscal quarter ending September 29, Starbucks announced a revenue of $9.1 billion, falling short of analysts' expectations of $9.6 billion. Adjusted earnings per share were $0.80, below the anticipated $1.03. The company also suspended its fiscal 2025 guidance.
Compounding the issue, global same-store sales decreased by 7%, significantly more than the 3.48% analysts had predicted. In its key markets, the U.S. and China, same-store sales dropped by 6% and 14% respectively, with comparable transaction volumes declining by 10% in the U.S. and 6% in China. This sales drop was twice what analysts expected and marked the largest quarterly decline in four years. Despite new products and promotions, these efforts failed to attract more customers.
In post-trading sessions, Starbucks' shares fell by as much as 9.1% before narrowing to a 4.15% decline. For the year, the stock's cumulative gain is less than 1%, compared to a 23% increase in the S&P 500.
Starbucks CFO Rachel Ruggeri expressed concern over these trends, acknowledging that increased investments had not reversed the decline in customer traffic, placing pressure on both revenues and profits. While plans are in place to address these issues, a turnaround is expected to take time. Edward Jones analyst Brian Yarbrough noted that the transformation would likely take longer than some investors anticipate, with challenging quarters ahead.
The newly appointed CEO, Brian Niccol, is tasked with steering the company toward recovery. Since his appointment on September 9, Niccol has been reorganizing Starbucks' leadership and has unveiled a preliminary growth plan, including making cafes more appealing and accelerating morning services. Niccol emphasized the need for a fundamental shift in strategy to rejuvenate growth. Plans include simplifying the complex menu, reassessing pricing, adjusting marketing strategies to highlight handcrafted products, and addressing staffing issues in stores.
Previously, Starbucks had set aggressive growth targets, leading to operational challenges under former CEO Laxman Narasimhan, which ultimately resulted in his departure. Niccol's leadership aims to eliminate these obstacles, though the future performance metrics remain uncertain.
