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Starbucks sales are expected to decline once more as investors await a turnaround
New CEO Brian Niccol has introduced strategies aimed at enhancing the customer experience and operational efficiency, such as job cuts and a focus on reducing wait times. However, analysts predict that the current quarter will not reflect these changes, with significant declines expected in both sales and profits. The company is also pausing price increases despite rising coffee costs, which may affect profit margins. Overall, while there is cautious optimism about a potential turnaround, substantial improvements may take time.
Starbucks (SBUX.O) is expected to report its fourth consecutive quarter of declining comparable sales on Tuesday, posing another challenge for investors anticipating new CEO Brian Niccol's efforts to boost demand at the struggling coffee chain.
Niccol, who has been in his role for four months, has introduced several initiatives aimed at revitalizing the business, which has faced increased competition and declining demand in both the U.S. and China. In October, the company suspended its fiscal year 2025 forecast while implementing Niccol's strategy, which includes reducing wait times and establishing a "coffeehouse code of conduct" that requires customers to make purchases to use restrooms or access in-store Wi-Fi.
Earlier this month, Starbucks announced job cuts and a reduction in management layers to enhance in-store operations, aiming to increase store hours and achieve Niccol's goal of wait times under four minutes.
"A key debate among investors is whether improvements in customer and employee experience can be realized in a few quarters or will take years. We believe it can happen sooner and are encouraged by the initial changes," said Stifel analyst Chris O'Cull, indicating that Starbucks could see a revival in customer traffic within a few quarters.
However, this quarter may not yield the desired results, as Starbucks is projected to report a 4.6% decline in first-quarter comparable store sales, with profits expected to drop around 26%, marking the fourth consecutive quarter of declines, according to estimates from LSEG.
RBC Capital Markets analyst Logan Reich noted that management is likely to prioritize consumer experience over short-term margins, suggesting it may take several quarters before they feel comfortable reducing store hours.
Additionally, the company is pausing price increases this year, despite rising coffee costs, which could impact its profit margins. Since Niccol's appointment, Starbucks shares have risen 28%, recovering from a 20% decline earlier in 2024.
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