Starbucks suspended its guidance for the entire next fiscal year, it said on Tuesday as the Seattle-based coffee giant's preliminary results for last fiscal quarter showed that sales are continuing to fall, while new CEO Brian Niccol looks to turn around the company's fortunes.
The coffee chain reported preliminary fourth-quarter results, saying same-store sales, net revenue and profit declined, weighed down by weak demand in the U.S.
Starbucks reported that its global sales fell 7% in July-September, marking the third consecutive quarter of decline. For the full fiscal year 2024, global comparable store sales declined 2%, the company said.
The company's earnings per share fell 25% compared to the same period last year to 80 cents. Its consolidated net revenues declined 3% to $9.1 billion for the fourth quarter of fiscal year 2024.
Its shares fell about 4% in after-hours trading. The stock has gained nearly 28% since the company named Niccol as CEO in early August.
Niccol, who was named to the top job in a surprise move, said, "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 with our 'Back to Starbucks' plan."
He said Starbucks would simplify its "overly complex menu, fix our pricing architecture."
Niccol also said Starbucks plans to change its marketing to focus less on Starbucks Rewards customers and more on highlighting the brand's handcrafted drinks and coffee innovation.
The company now expects comparable sales to decline 6% in the U.S. and 14% in China for the fourth quarter that ended Sept. 29. It suspended its annual outlook for the fiscal year that will end in September 2025.
"Despite our heightened investments, we were unable to change the trajectory of our traffic decline," said Chief Financial Officer Rachel Ruggeri. "We are developing a plan to turn around our business, but it will take time."
"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," William Blair analyst Sharon Zackfia said.
"We suspect multiple avenues of attack (by Niccol) are likely, including increasing labor hours at stores and reducing the frequency of limited-time promotions."
Before taking the helm at Starbucks, Niccol was CEO of Chipotle Mexican Grill, where he owned the burrito maker's problems, agreed with critics and revitalized sales.
At Starbucks, Niccol took over from Laxman Narasimhan, inheriting several challenges at the coffee giant that has been under pressure from an activist investor to improve its business.
The coffee chain is also suffering from increased competition and weak demand in two of its top markets, the U.S. and China.
Niccol, in his first address as CEO, said last month he would look to "reestablish the brand as the community coffeehouse" in the U.S. as he laid out his plan for the next 100 days.
Starbucks was one among many top Western food and beverage brands that have faced protests and boycott campaigns across the globe for its perceived support of Israel, as reflected in the company’s financial results for the last three quarters.
The coffee chain lowered its annual sales forecast for October-December last year due to the negative impact on sales in the Middle East, while its revenue fell 2% this January-March and its global sales declined 4%, a first since the end of 2020.
Starbucks earlier reported that its global sales fell 3% in April-June.
Starbucks still plans to hold its scheduled fourth-quarter earnings conference call on Oct. 30.
