Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Starbucks has suspended its financial guidance as it unexpectedly released results that showed a decline in revenue and a sharp drop in quarterly earnings.
The preliminary results, published more than a week ahead of schedule, are the first under new chief executive Brian Niccol, who joined the world’s largest coffee chain last month.
Starbucks’ global comparable store sales fell 7 per cent year on year in its fiscal fourth quarter as transactions in its US stores fell by a tenth. Net revenues declined 3 per cent to $9.1bn in the three months to September. On a per-share basis, earnings fell 25 per cent year over year.
“Given the company’s CEO transition coupled with the current state of the business, guidance will be suspended for the full fiscal year 2025,” which just began, the company said.
Business at Starbucks has weakened this year because customers are balking at the prices of its drinks and the long queues during busy times at stores. The company has also encountered tough competition in China, a market pivotal to its growth.
Even as it reported lower profits, the chain raised its quarterly dividend from 57 cents a share to 61 cents. Chief financial officer Rachel Ruggeri said: “We want to amplify our confidence in the business, and provide some certainty as we drive our turnaround.”
The company ousted former CEO Laxman Narasimhan in August and hired Niccol, who has been credited with turning around burrito chain Chipotle Mexican Grill. Niccol has set out a vision to restore the cosy atmosphere found at Starbucks locations in its early days, saying he would first focus on the chain’s US stores.
In a video released on Tuesday, Niccol said it was “clear we need to fundamentally change our recent strategy” to return to growth, saying Starbucks would simplify an “overly complex” menu, fix its pricing architecture and “ensure that every customer feels Starbucks is worth it every single time they visit”.
“We need to focus on what has always set us apart — a welcoming coffee house where people gather and where we serve the finest coffee, handcrafted by our skilled baristas,” he said.
Comparable sales at US locations fell 6 per cent in the quarter, as higher bills paid by customers were more than offset by a 10 decline in the number of transactions.
Comparable store sales in China dropped 14 per cent, “weighed down by intensified competition and a soft macro environment that impacted consumer spending”, the company said.
Shares in Starbucks were down 3.6 per cent in after-hours trading.
Read the full article here