Starbucks Reports a Slide in Sales and Traffic

In recent years, the onset of fall draws customers to Starbucks for pumpkin spice lattes. However, this year, the trend took a turn. The coffee giant reported a significant decline in same-store sales for its preliminary quarterly earnings. Global same-store sales fell 7% in the fourth quarter ending September, with North America seeing a 6% fall and China a steep 14% drop. The full fiscal year showed a noticeable traffic decline, leading to a more than 4% drop in Starbucks' stock in aftermarket trading.

The results highlight the challenges facing Starbucks and its new leader, Brian Niccol, who recently transitioned from Chipotle to Starbucks as chairman and chief executive. He emphasized the need for strategic change to return to growth. Despite previous success throughout the Covid pandemic, thanks to expanded loyalty programs and drive-through capabilities, Starbucks is now encountering difficulties. Factors contributing include competition from new coffee shops, reduced consumer spending, and boycotts.

Starbucks has faced ongoing pressure, marked by two quarters of declining sales and a nearly 30% drop in stock price over six months. This led to the replacement of its previous chief executive, Laxman Narasimhan. Efforts to increase consumer visits in North America with product expansion and app promotions fell short, leading to unsatisfactory performance. In China, Starbucks' rapid expansion plan faced challenges due to a competitive environment.

To address these issues, Brian Niccol highlighted the need to tackle staffing, remove bottlenecks, and simplify operations for baristas, along with improving the mobile ordering system. He aims to streamline the menu, revise pricing, and enhance customer value. Further details on the turnaround plan are expected during the earnings call on October 30.