Starbucks’ stock fell by more than 3% in after-hours trading on Tuesday following the release of its preliminary fourth-quarter results, which revealed another drop in sales. As the coffee giant grapples with a prolonged sales slump, CEO Brian Niccol announced plans for a strategic overhaul under the company’s “Back to Starbucks” initiative.
Niccol, who took the reins nearly two months ago, acknowledged the need for fundamental changes to return the business to growth. “Our fourth quarter performance makes it clear that we need to fundamentally change our strategy so we can get back to growth,” he said in a statement. More details about the company’s turnaround plan are expected to be shared during its upcoming earnings call on October 30.
Sales Drop Sparks Changes
Starbucks reported that its preliminary net sales fell by 3% to $9.1 billion for the quarter, with adjusted earnings per share at 80 cents. These figures fell short of analyst expectations, with LSEG forecasting earnings of $1.03 per share and $9.38 billion in revenue.
This marks the third consecutive quarter of declining same-store sales, with a steep 7% drop—the sharpest since the COVID-19 pandemic. U.S. sales dropped by 6%, while customer traffic fell by 10%, despite Starbucks increasing promotions and product offerings.
The company’s second-largest market, China, saw an even more significant decline, with same-store sales plunging 14%, driven by heightened competition and evolving consumer behavior. In response, Starbucks has suspended its fiscal 2025 outlook, citing the ongoing CEO transition and the current state of the business.
Addressing Key Challenges
In an effort to reverse the downward trend, Niccol revealed plans to streamline Starbucks’ operations, focusing on simplifying the menu, adjusting pricing, and enhancing the customer experience. He emphasized that the company’s marketing will shift its focus to all customers, not just loyalty program members—an issue that both customers and baristas have voiced concerns over in recent years.
Despite the disappointing results, Starbucks announced an increase in its dividend from 57 cents to 61 cents per share. Chief Financial Officer Rachel Ruggeri expressed confidence in the company’s ability to turn things around, though she acknowledged that the process would take time.
“We want to amplify our confidence in the business, and provide some certainty as we drive our turnaround,” Ruggeri said in a statement.
Niccol’s Challenge to Revive Starbucks
The latest update comes just two months after Niccol’s appointment as CEO, following a period of falling sales and pressure from activist investors. Niccol, who previously led Chipotle through a successful turnaround after a series of food safety crises, is focused on revitalizing Starbucks’ U.S. business as a first step.
In his first week on the job, Niccol outlined four areas of improvement: enhancing the barista experience, improving morning service, optimizing cafes, and strengthening the company’s branding. He has already begun restructuring the executive team, bringing in Tressie Lieberman, a former Chipotle executive, as Starbucks’ global chief brand officer—a newly created role.
Starbucks’ North American CEO Michael Conway also announced his retirement last month, following just five months in the role, adding to the leadership shakeup.
As of Tuesday’s close, Starbucks shares have risen by 1% this year, with the company valued at over $109 billion.
