Starbucks Corporation (SBUX) delivered a surprising preliminary report for its fourth quarter on Tuesday, revealing a decline that startled investors. The company recorded quarterly revenue of $9.1 billion, marking a 3% decrease compared to the previous year. Earnings per share (EPS) also saw a significant drop, falling 24% to $0.80.
In light of the disappointing performance, Starbucks has suspended its full-year fiscal 2025 guidance. This decision comes as the company transitions to new CEO Brian Niccol, allowing time for strategic reassessment. Following the announcement, shares dipped 3% in after-hours trading.
The results reflected a challenging quarter for U.S. operations, with same-store sales decreasing by 6% year over year. This downturn was driven by a 10% reduction in foot traffic, although the average transaction value did increase by 4%. Despite recent promotional efforts through the Starbucks app, including a pairing menu that offered a small coffee with a croissant or breakfast sandwich for $5 or $6, customer engagement failed to improve, as indicated in the company’s release.
In China, the performance was equally disheartening, with same-store sales declining by 14%. Foot traffic dropped by 6%, accompanied by an 8% decrease in the average ticket size. Starbucks attributed this poor performance to heightened competition and a sluggish macroeconomic environment that has affected consumer spending.
Prior to the earnings announcement, Starbucks shares had seen a 3% increase year to date and a notable 10% rise over the past six months, largely due to optimism surrounding Niccol’s leadership following his successful tenure at Chipotle (CMG). The company plans to disclose its official fourth quarter and full fiscal year 2024 financial results after the market closes on October 30.
As Niccol steps into his new role, he faces a considerable challenge in steering Starbucks back on course. He has initiated a management overhaul, including the appointment of Tressie Lieberman as global chief brand officer, set to begin her role on November 4 after serving as CMO at Yahoo.
In a video shared on Starbucks’ website, Niccol reiterated the key challenges he identified in his initial communication. He emphasized the need to simplify the menu, address pricing and value perceptions, and enhance customer retention strategies.
“We’re fundamentally changing our marketing approach. Our focus has been on Starbucks Rewards customers rather than engaging with our entire customer base. We are rapidly evolving, as you may have noticed,” Niccol stated, drawing on his extensive marketing background.
“I believe our issues are quite solvable, and we possess significant strengths to leverage. My career has been devoted to understanding and nurturing brands, and it’s evident that the Starbucks brand is robust and enduring,” he concluded.
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