Starbucks Corp. has suspended its annual financial forecast through the next fiscal year as newly appointed CEO Brian Niccol takes charge of revamping the coffee giant, which is grappling with declining demand for its premium-priced beverages. The company reported preliminary fourth-quarter results, revealing a drop in same-store sales, net revenue, and profit, particularly due to weak demand in the U.S. market.
Following the announcement, Starbucks’ shares fell around 4% in after-hours trading. However, the stock has still seen an overall gain of nearly 28% since Niccol was unexpectedly named CEO in early August. Niccol, who was previously CEO of Chipotle Mexican Grill, has emphasized the need for a strategic overhaul, stating that Starbucks must “fundamentally change” its approach to regain growth. His “Back to Starbucks” plan will focus on simplifying the brand’s “overly complex menu” and reevaluating its pricing structure.
“It’s clear we need to fundamentally change our strategy so we can get back to growth, and that’s exactly what we are doing,” Niccol said in his first public remarks since taking the role. The company expects a 6% decline in comparable sales in the U.S. and a sharper 14% drop in China for the fourth quarter, which ended on September 29. Starbucks has also suspended its outlook for the fiscal year ending in September 2025.
Strategic Challenges and Missed Targets
Despite heightened investments aimed at reversing the sales slump, Starbucks has not been able to stop its declining customer traffic, according to Chief Financial Officer Rachel Ruggeri. “We are developing a plan to turn around our business, but it will take time,” Ruggeri explained. Nevertheless, the company boosted its quarterly dividend from 57 cents to 61 cents per share in an attempt to reassure investors about its long-term strategy.
The company’s popular rewards program also failed to drive sufficient traffic to its stores, prompting Niccol to announce plans to broaden Starbucks’ marketing focus. He emphasized the need to target all customers, rather than just “Starbucks Rewards” members, which has been the company’s primary loyalty-driven marketing effort in recent years.
Ruggeri acknowledged the scale of the task ahead: “Despite our heightened investments, we were unable to change the trajectory of our traffic decline.” She also noted that the turnaround will not happen overnight and will require ongoing adjustments.
Analysts Weigh In
Industry analysts have expressed cautious optimism about Niccol’s leadership, but many agree that a significant transformation will take time. William Blair analyst Sharon Zackfia stated, “While we remain optimistic that Starbucks can return to positive comparable sales as fiscal 2025 progresses under Niccol’s leadership, we suspect a reality check is needed on the timeline to reinvigorate profitability.”
Zackfia anticipates that Niccol will explore multiple strategies to address Starbucks’ challenges, such as increasing labor hours at stores and reducing the frequency of limited-time promotions, which have put pressure on store operations. Niccol has a track record of turning around struggling companies, having revitalized sales and operations during his tenure at Chipotle.
Facing Stiff Competition and Market Headwinds
Niccol inherits several hurdles at Starbucks, including pressure from activist investors to boost the company’s performance. Starbucks has been contending with rising competition in its key markets—particularly the U.S. and China, where it has traditionally thrived. The company has also struggled to keep up with evolving consumer preferences, which have shifted toward more affordable and innovative options, putting pressure on its premium pricing model.
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In his first address as CEO last month, Niccol laid out a plan for the next 100 days, indicating his intent to reestablish Starbucks as the go-to “community coffeehouse” in the U.S. He is also focused on simplifying the customer experience, a strategy that helped him turn around Chipotle by addressing customer concerns and making the brand more accessible.
A Familiar Playbook
Niccol’s strategy of starting with a clean slate echoes the approach of other CEOs tasked with turning around large consumer brands. For instance, Nike’s new CEO, Elliott Hill, is employing a similar approach after taking over from John Donahoe, who faced challenges in reversing the sportswear giant’s declining sales.
Despite the current challenges, Starbucks plans to move forward with its scheduled fourth-quarter earnings call on October 30, providing more insight into the company’s strategy and performance under Niccol’s leadership.
As Niccol begins implementing his turnaround plan, stakeholders will be watching closely to see how his changes impact the company’s financial performance and whether Starbucks can regain its footing in the competitive global coffee market. The coming months will be critical in determining whether Starbucks can reverse its declining sales and restore investor confidence.
