Starbucks sales miss points to slow turnaround under new CEO

Starbucks Corp. sales and profit fell more than anticipated, signaling that a plan to revive growth by speeding up service and making cafes more welcoming has yet to bear fruit.

Comparable sales dropped 2% in the fiscal third quarter, while analysts polled by Bloomberg foresaw a 1.5% decline. Earnings excluding some items were 50 cents a share, well below the 65-cent average estimate.

Starbucks is trying to stage a comeback after an uncharacteristic streak of same-store sales declines over the past year and a half. Chief Executive Officer Brian Niccol, who took the helm in September, is betting he can give the U.S. business a jolt by cutting down wait times, revamping the menu and remodeling stores to bring back seating.

While analysts and investors have generally welcomed the changes, they’ve been wary about the timeline and the price tag. Niccol said Tuesday the turnaround efforts are “ahead of schedule,” and he vowed to unleash “a wave of innovation in 2026.” Starbucks is cutting the cost of building stores by 30%, he added, and it’s seeing progress from a new program to add more staff to stores, improve customer service, and prioritize in-store and drive-thru orders.

“We continue to see the Starbucks turnaround as multifaceted with the complexity that will require at least several years before settling into a steady algorithm,” Evercore ISI analyst David Palmer wrote in a research report.

Niccol’s goal is to bring back the cozy vibes and personal touches that once characterized Starbucks cafes. The company announced that it plans to end its pickup-only store format for mobile orders in the next fiscal year, saying those locations lacked the warmth of traditional stores.

Starbucks shares rallied as much as 6.4% in New York trading Wednesday as investors focused on green shoots in the earnings release, including the first sales gain in China since the end of 2023. The stock has risen about 3% so far this year, lagging the S&P 500 Index.

A smaller sales slump than expected in the U.S. – as well as Niccol’s remarks about improved employee turnover and customer satisfaction – “point to momentum,” Bloomberg Intelligence analyst Michael Halen said.

In China, the chain’s second-largest market, Starbucks has cut prices for some tea-based products and added more sugar-free options to lure back customers. The moves paid off in the quarter with 6% more transactions and a 2% bump to same-store sales.

Starbucks has been looking at selling a stake in its business in China, Bloomberg News has reported. Niccol said on a call with analysts that more than 20 parties are interested, and the company wants to retain a “meaningful” stake in the business.

Executives said operating margins declined in the quarter due to spending on the turnaround plan, including adding more baristas and hosting a conference in Las Vegas to rally store managers, as well as inflation.

The company will spend $500 million on more labor in U.S. company-operated stores over the next year, Chief Financial Officer Cathy Smith said on the earnings call.

Smith cautioned that the company is “conservative” about the remainder of its fiscal year given changes from the turnaround plan and the uncertain consumer environment.

“Transactions are improving,” Smith said. “Just where they will net out is unclear.”