Global coffee giant Starbucks (SBUX, Financial) has paused its 2025 financial guidance after experiencing significant sales declines for three consecutive quarters. This move underscores the challenges faced by newly appointed CEO Brian Niccol. According to preliminary reports, Starbucks experienced a 7% drop in same-store sales for the fourth quarter of the 2024 fiscal year, ending on September 29. This decline was particularly evident in the U.S., with traffic decreasing by 10%, and a 14% comparable sales drop in China.
The suspension of guidance is intended to allow Niccol to evaluate the business and solidify a transformation plan aimed at reigniting growth. Since taking over the helm on September 9, Niccol has been restructuring leadership and outlining strategies to boost performance, including making Starbucks cafes more appealing and enhancing morning services.
Analysts from Edward Jones suggest the transformation may take longer than investors anticipate, indicating tough quarters ahead. The recent sales drop was twice the consensus expectations and marked the worst quarterly performance in four years. Efforts to attract customers through new products and promotions failed to meet the desired results. Starbucks reported a GAAP earnings per share of $0.80 for the fourth quarter, a 25% decrease from the previous year, while non-GAAP earnings were also $0.80, signifying a 24% decline at a constant currency rate.
Following the unfavorable earnings report and guidance suspension, Starbucks' stock tumbled by as much as 9.1% in after-hours trading, later recouping some losses. The stock has gained less than 1% this year, compared to a 23% rise in the S&P 500 index.
Nicol announced plans to fundamentally change Starbucks' recent strategy to restore growth. This includes simplifying the menu, reassessing pricing structures, and improving marketing to emphasize handcrafted products. Workforce allocation will also be addressed at the stores.
Companies often reset investor expectations to align with new executive strategies. Similarly, Nike (NKE) retracted its sales guidance earlier this month amid a challenging period. Niccol's predecessor at Starbucks, Laxman Narasimhan, struggled with ambitious growth targets that proved unsustainable, as U.S. consumers reduced their Starbucks purchases.
The removal of performance guidance is seen as clearing obstacles for Niccol’s ambitions. Analysts are optimistic about his tenure, given his previous success with Taco Bell and Chipotle, predicting a potentially extended leadership at Starbucks. The company will release full Q4 and 2024 fiscal year results on October 30.
Brian Niccol, who gained recognition by turning around Chipotle, officially took charge of Starbucks in September. He is known for transforming Chipotle by focusing on innovation, operational excellence, and digital transformation, significantly boosting the company’s market value and setting industry benchmarks. His appointment at Starbucks initially rallied the stock by over 24%, highlighting market confidence in his leadership.
