Starbucks suspends annual forecast as new CEO Niccol preps turnaround plan

UPDATE 5-Starbucks suspends annual forecast as new CEO prepares turnaround plan *

Starbucks Corp suspended its forecast through the next fiscal year as new CEO Brian Niccol looks to turn around the coffee giant struggling with falling demand for its pricey drinks.   

The coffee chain also reported preliminary fourth-quarter results, saying same-store sales, net revenue, and profit declined, weighed down by weak demand in the US   

Its shares fell about 4 per cent in after-hours trading. The stock has gained nearly 28 per cent since the company named Niccol as CEO in early August.   

Niccol, who was named to the top job 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."   

 

The company now expects comparable sales to decline 6 per cent in the US and 14 per cent in China for the fourth quarter ended Sept. 29.   

It suspended 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.   

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.   

"We suspect multiple avenues of attack (by Niccol) are likely, including increasing labor hours at stores and reducing the frequency of limited-time promotions." Before taking the helm at Starbucks, Niccol was CEO of Chipotle Mexican Grill, where he owned the burrito maker's problems, agreed with critics, and revitalized sales.   

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.   

The coffee chain is also suffering from increased competition and weak demand in two of its top markets, the US 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 US as he laid out his plan for the next 100 days.   

Niccol's strategy to start with a clean slate echoes that of new Nike CEO Elliott Hill, a company veteran. The sportswear giant had also been grappling with declining sales under former boss John Donahoe.   

Starbucks still plans to hold its scheduled fourth-quarter earnings conference call on Oct. 30.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)