Starbucks Corporation (SBUX) reported its first quarter fiscal year 2025 results, revealing declines across key metrics but exceeding Wall Street expectations. This performance marks the first full quarter under CEO Brian Niccol’s leadership, who assumed the role on September 9th, 2024. The results offer insights into the initial stages of Niccol’s ambitious turnaround plan for the coffee giant.
Table Content:
A Glimpse into the Numbers: Revenue, EPS, and Same-Store Sales
While revenue remained flat year-over-year at $9.4 billion, surpassing the anticipated $9.32 billion, earnings per share (EPS) experienced a 23% decline to $0.69. However, this figure still outperformed the projected $0.66. Starbucks attributed the earnings decline to “heightened investments” in Niccol’s revitalization strategy, dubbed the “Back to Starbucks” plan. This plan emphasizes a return to core coffee offerings, optimized pricing strategies, and enhanced service speed.
Globally, same-store sales and foot traffic decreased by 4% and 6%, respectively, marking the fourth consecutive quarter of decline. Despite this, the average ticket size saw a 3% increase. In North America and the US, same-store sales mirrored the global trend with a 4% drop, while foot traffic plummeted by 8%. This decrease was partially mitigated by a 4% rise in the average ticket.
Strategic Shifts: Fewer Promotions, Increased Marketing, and Menu Simplification
A key element of Starbucks’ current strategy involves a significant reduction in promotional activities. The company reported a 40% decrease in discounted transactions compared to the previous year. CFO Rachel Ruggeri highlighted a strategic shift towards doubling marketing expenditure as a percentage of revenue, offsetting the savings accrued from reduced promotions.
Furthermore, Starbucks plans to streamline its menu by reducing beverage and food options by 30% by the end of the fiscal year. Recent decisions include eliminating the surcharge on non-dairy milk and temporarily halting price increases. A pilot program aimed at improving staffing levels is also slated for launch in 700 stores.
Operational Challenges and Future Outlook
Operating margin contracted by 390 basis points during the quarter, primarily due to “deleverage and investments” associated with Niccol’s strategic initiatives. Optimizing mobile orders remains a priority for the CEO. Despite escalating coffee bean costs, Starbucks has managed to minimize their impact, as the total cost of green coffee typically constitutes only 10% to 15% of product and distribution costs.
Starbucks stock performance has shown mixed results. While trailing the S&P 500’s 24% gain with a 5% increase over the past year, the stock has surged by 32% in the six months following Niccol’s appointment as CEO in August 2024.
Wall Street’s Anticipations: Continued Negative Same-Store Sales Trends
Analysts predict a continuation of negative same-store sales trends for Starbucks in the coming quarters. This outlook reflects the challenges the company faces in a competitive market and its ongoing efforts to implement a comprehensive turnaround strategy. The first quarter results provide a baseline for measuring the effectiveness of Niccol’s leadership and the “Back to Starbucks” plan in revitalizing the company’s performance.
