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Same-store sales fell 4% in the fiscal quarter ended December 29, the company said in an earnings release Tuesday. That’s an improvement from the 7% slump Starbucks reported in the prior quarter and a smaller decline than analysts polled by Bloomberg were anticipating.
Chief Executive Officer Brian Niccol, who has been in the job since September, is moving to remake the company after boycotts, price increases and slow service sparked a slump in performance. Some of the most recent steps to upgrade the diner experience, implemented on Monday, include bringing back ceramic mugs and the condiment bar. The company has also dropped the upcharge for nondairy milk and rolled out new advertising focused on its coffee heritage.
During a call with analysts, Niccol said the company is offering fewer discounts and increasing its marketing “to demonstrate the craft of our coffee” and emphasize “the premium experience you get from Starbucks.” That’s generating results, he said, with the company taking “baby steps in both of these areas, but all moving in the right direction.”
The results suggest Starbucks is already making headway, even if it comes at a cost to profit. Earnings per share were slightly higher than the average estimate while transactions in North America, the chain’s largest geography, declined in line with expectations. Operating margin in the region fell because of higher spending in wages, benefits and hours, and due to the removal of the non-dairy milk upcharge.
Sales fell by less than analysts anticipated in China, a key market where growth has suffered.
The shares were little changed at 8 PM in extended New York trading, erasing an earlier gain after Chief Financial Officer Rachel Ruggeri told analysts that general and administrative costs will spike in the company’s current quarter, since the company will be paying severance and other benefits on the back of an impending restructuring.
Earnings per share in the period are also expected to be the lowest this fiscal year.
Starbucks is looking to prioritize customers and improve the in-store experience, starting with the US and Canada. As part of those efforts, the company has started restricting cafe access to paying customers and their guests, a reversal from an open-door policy that was adopted in 2018 after two Black men were arrested for waiting in a Philadelphia store without ordering. The new rules have divided baristas.
The company is also looking to cut 30% of its food and beverage lineup, Niccol said. He wants to simplify baristas’ jobs to help customers who order in-store to get their drinks in four minutes or less. There’s also a feature in development for the company’s app that would let customers select a pick-up time slot.
The Seattle-based company is planning to lay off corporate workers by early March. Niccol said in an earlier memo announcing the cuts that Starbucks has too many layers of management and there needs to be more clarity on who makes decisions and is accountable for achieving goals.
Starbucks in October suspended guidance for the fiscal year that started September 30, saying the move would give Niccol a chance to assess the business and solidify a turnaround plan.
