Starbucks' shares fell 6% in after-hours trading Tuesday after the coffee giant reported weaker-than-expected earnings and another quarter of declining same-store sales.
Despite the underwhelming financial performance, CEO Brian Niccol said the company’s turnaround strategy is beginning to gain momentum.
As reported by CNBC, “Our financial results don’t yet reflect our progress, but we have real momentum with our ‘Back to Starbucks’ plan,” Niccol said in a video posted on the company’s website. “We’re testing and learning at speed and we’re seeing changes in our coffeehouses.”
According to the report, the company's second-quarter net income was $384.2 million, or 34 cents per share, a sharp drop from $772.4 million, or 68 cents per share, in the same period last year. Adjusted earnings came in at 41 cents per share, falling short of Wall Street estimates. Starbucks’ operating margin also declined, falling to 6.9% from 12.8%, largely due to higher labour costs and scaled-back automation plans.
“At this stage in our turnaround, [earnings per share] shouldn’t be used as a measure of our success,” Niccol said on the company’s earnings call.
Under Niccol, who took over as CEO in September, Starbucks has been working to revitalise its core U.S. business by focusing more directly on coffee and the customer experience. However, key metrics show that progress has yet to materialise in sales numbers. Same-store sales fell globally by 1% in the quarter, the fifth consecutive quarterly decline, as transactions dropped 2%.
The picture was worse in the United States, where transaction volumes dropped 4%, pushing same-store sales down by 2%. In China, Starbucks' second-largest market, same-store sales were flat as lower average spending offset increases in traffic, reported CNBC.
Niccol acknowledged that past plans to cut labour and rely more heavily on automated systems had backfired, leading to slow service and customer dissatisfaction. In response, Starbucks has increased staffing in its cafés while pulling back on some equipment investments. For example, the company has paused its rollout of the Cold Pressed Cold Brew system and heating equipment for food items.
“We believe this evolved, labour-focused approach has more potential to improve throughput and connection while minimizing future capital expenditures on equipment,” Niccol said.
Globally, Starbucks has also increased its promotional spending in an effort to boost store traffic and incurred restructuring costs aimed at simplifying its corporate operations. In February, the company announced it would eliminate 1,100 corporate roles as part of the ongoing transformation plan.
External pressures have also added to the company’s challenges. Trade disputes, driven by President Donald Trump’s tariffs, are expected to affect Starbucks’ costs, particularly those linked to coffee beans.
According to Starbucks CFO Cathy Smith, about 10% to 15% of the company’s product and distribution costs are tied to green coffee. “We expect that the balance of this fiscal year will bring some challenges as we navigate a dynamic macroeconomic environment, including tariffs and volatile coffee prices,” the company noted in a regulatory filing.
Despite the hurdles, Niccol remains optimistic. He said recent marketing campaigns are resonating with customers and service speeds are improving, with one goal being to fulfil each order within four minutes. Starbucks is also planning to upgrade its stores with improved seating and more “premium touches” to entice customers to stay longer.
The company has yet to reinstate its 2025 forecast, which was withdrawn last October when the turnaround plan was first introduced.
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