Starbucks shares dropped Wednesday after the company warned its inflation-battered customers are cutting back on its pricey coffee — even as its new CEO Brian Niccol begins a turnaround bid.
The Seattle-based java giant released preliminary results for the latest quarter, revealing its same-store sales dropped 7% in the fourth quarter — its steepest decline since the pandemic.
Preliminary sales fell 3% to $9.1 billion in revenue, below expectations of $9.4 billion.
The struggling chain reported adjusted earnings per share of 80 cents, missing estimates of $1.03 — and suspended its financial forecast for the full fiscal year ending in 2025.
“The lower-than-expected performance for the full fiscal year was a result of pronounced traffic decline, including a cautious consumer environment,” the java chain said in a statement.
Niccol — a former Chipotle executive hired last month inject new life into the company — said Starbucks needs to simplify its complicated, jargon-filled menu, fix pricing and make sure all drinks are handed directly to customers.
“Our fourth quarter performance makes it clear that we need to fundamentally change our strategy so we can get back to growth,” Niccol said in a statement.
“We need to focus on what has always set us apart – a welcoming coffeehouse where people gather and where we serve the finest coffee, handcrafted by our skilled baristas,” Niccol said in a statement.
NIccol said Starbucks will share more details during its earnings call on Oct. 30.
Starbucks shares were recently off 0.9% at $95.94.
Starbucks blamed its poor results on soft demand in North America. Same-store sales dropped 6% in the North America division.
Traffic plunged 10%, despite additional promotions via the company’s mobile app and new menu offerings.
Same-store sales tumbled 14% in China, Starbucks’ second-largest market, which the company attributed to steep competition.
“Despite our heightened investments, we were unable to change the trajectory of our traffic decline, resulting in pressures in both our top-line and bottom-line,” Chief Financial Officer Rachel Ruggeri said in a statement.
Ruggeri said the company is working on a turnaround plan, but warned it will take time.
Despite the disheartening quarter, Starbucks raised its dividend from 57 cents to 61 cents per share.
Ruggeri said Starbucks raised its dividend to “amplify our confidence in the business, and provide some certainty as we drive our turnaround.”
The preliminary earnings report is just the latest miss for Starbucks.
The company has lowered its sales expectations twice this year and struggled to bring back occasional customers, who have stopped purchasing the chain’s pricey drinks in favor of saving.
Niccol has been widely praised for orchestrating a turnaround at Chipotle that boosted the burrito chain’s stock by more than 50% over the past year.
Niccol took the helm at Starbucks in September as activist investors built stakes in the fledgling company and Starbucks suffered two consecutive quarters of falling sales.
In addition to focusing on the customer experience and revamping Starbucks locations, Niccol has led a company restructuring.
On Friday, Starbucks announced Tressie Lieberman, former vice president of digital marketing at Chipotle, will be joining Starbucks in a newly-created position as global chief brand officer.
Last month, Starbucks said its North American CEO Michael Conway – who was appointed by Niccol’s predecessor, Laxman Narasimhan – would retire after just five months in the role.