Under new CEO, Starbucks is looking to revamp its operations to win back customers — but analysts are worried about costs
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Bill PetersFollow
Last Updated: Jan. 28, 2025 at 10:01 p.m.
First Published: Jan. 28, 2025 at 4:24 p.m.
Starbucks said Tuesday that same-store sales fell 4% year over year in its fiscal first quarter.Photo: AFP/Getty Image
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As Starbucks Corp. tries to turn things around this year, executives on Tuesday said lots of smaller moves were adding up to a bigger payoff, even as it prepares for job and menu cuts and tries to untangle its mobile-ordering process.
The return of ceramic mugs, handwritten notes on cups and more free refills are helping make hanging out in stores a little more fun, they said. Customers in the coffee chain’s rewards program came back after it removed a charge on non-dairy milk in customized orders. And even as Starbucks
SBUX+8.14% rolled back discounts, more customers who aren’t in the rewards program began to drop by, helped by a new marketing campaign focused on coffee craftsmanship. Business in the mornings got better.
“Our work to reintroduce our brand is just beginning,” Brian Niccol, Starbucks’ new chief executive, said during Tuesday’s earnings call, adding that “when we talk about our business, customers respond.”
Still, executives said Starbucks plans to shrink its food and beverage menu offerings by around 30% by the end of its fiscal year, which runs through September, potentially depriving customers of their favorite items. Its mobile-ordering and pickup process is still cluttered. And Starbucks said its profits would be the thinnest in the second quarter — the current one — due to seasonal factors, severance costs due to job cuts and investments in the business.
The coffee chain reported quarterly results that weren’t as bad as analysts forecast. But after moving more than 3% higher early in after-hours trading Tuesday, the stock ended the extended session up just 0.3%.
Starbucks reported fiscal first-quarter revenue of $9.39 billion, compared with $9.43 billion in the same quarter a year ago. Same-store sales fell 4% year over year. Starbucks earned 69 cents a share, down from 90 cents a year earlier.
Analysts polled by FactSet expected Starbucks to earn 67 cents a share for its fiscal first quarter, on $9.32 billion in revenue and a 5.5% drop in same-store sales.
After weaker same-store sales through much of last year, Starbucks hopes to turn around its fortunes by banking on warmer atmospheres and efforts to tighten up its menu and customization options. But some analysts have worried about the costs. The company earlier this month said job cuts would be likely, at least among people who didn’t work in its stores.
Earlier Tuesday, Niccol announced some leadership changes — a handful of departures and additions — as it changes up operations and adds new roles, with a focus on developing its stores.
Consumers — turned off by those stores and Starbucks’ coffee prices in particular, or cautious about inflation overall — have been more reluctant to visit over the past year. Competition in China, where the economy has also sputtered, has been stiff.
Comparable transactions slipped 6% during its first quarter, Starbucks said Tuesday. Margins shrank, as Starbucks put more money into its baristas’ wages, hours and benefits, and after it removed the charge for non-dairy milk customizations.
Niccol, during the call, said that as the chain pares back its menu, its digital menus would give it flexibility to respond to demand during different parts of the day. Teas and matcha lattes, he said, were resonating with younger consumers.
And he said Starbucks, through pilot projects, is looking at ways to strengthen staffing and improve the way it handles orders. The company has been trying to shave its service times down to four minutes. When estimated order times for mobile orders stretch beyond 15 minutes, he said, customers start to bail.
Mobile ordering overall, he said, continues to create crowded counters and distractions for workers, as orders flood in and get processed before customers can even get to the store. Niccol said Starbucks would expand testing of risers and shelves to separate cafe orders from mobile ones.
“The biggest challenge is the fact that the mobile ordering has no sequencing,” he said during the call. “It’s just first in, first out.”
R.J. Hottovy, head of analytical research at Placer.ai, a firm that analyzes retailers’ foot traffic, said Tuesday that Starbucks’ results marked an improvement from past trends.
“While CEO Brian Niccol’s vision of transforming Starbucks back into a ‘community coffeehouse’ will take time to fully materialize, initial steps —such as enhancing customer engagement, reducing operational complexity and streamlining the menu — are already showing positive results, with visitation trends improving as the quarter progressed,” he said.
Ahead of the results, other analysts said the focus for Wall Street would be squarely on the progress of Starbucks’ turnaround plans, and took a note of caution.
“We believe there is really only one question heading into SBUX results this week: When will the ‘Back To Starbucks’ plan yield a positive inflection in results?” John Zolidis, president and founder of Quo Vadis Capital, said in emailed commentary on Monday.
“We have an opinion about the key question above,” he continued. “We believe the answer is: Not as soon as is reflected in analyst estimates.”
