Starbucks Reports Better-than-Expected Results, Encourages Lured Customers with Coffee-Focused Ads and Removal of Nondairy Milk Upcharge
Improved Same-Store Sales and Marketing Initiatives
Starbucks Corp. has surpassed quarterly earnings projections and witnessed a return of lapsed customers due to coffee-centric advertising and the removal of additional charges for non-dairy milk. Despite a 4% decline in same-store sales for the quarter ending December 29th, this represents an improvement from the previous quarter's 7% slump.
CEO Brian Niccol, who took the helm in September, has implemented strategies to address the exodus of customers caused by boycotts, price hikes, and slow service. Niccol attributed the increase in visits from non-loyalty program members to marketing that emphasized "the craft of our coffee" and the "premium experience" at Starbucks. The elimination of the non-dairy milk surcharge also contributed to the resurgence of rewards customers.
Growth in North America, Challenges in China
Transactions in North America, Starbucks' largest market, declined in line with expectations. However, sales in China, a crucial growth market, were less severe than analysts anticipated. According to Matthew Goodman, an analyst at M Science, the company's turnaround efforts are yielding positive results.
Store Experience Enhancements and Menu Simplification
Niccol's focus remains on improving the in-store experience, particularly in the US and Canada. The company has reintroduced ceramic mugs and condiment bars while limiting access to the cafe for customers and their guests. Starbucks is also working to simplify the menu and expedite service. Niccol announced a reduction of approximately 30% in the food and beverage lineup.
Restructuring Initiatives and Future Outlook
Starbucks shares experienced a slight uptick in extended New York trading but later pared most of the gains. CFO Rachel Ruggeri projected an increase in general and administrative costs during the current quarter due to severance payments and other benefits associated with an impending restructuring. Earnings per share are anticipated to be the lowest of the fiscal year.
Niccol plans to lay off corporate workers by early March, citing the need to streamline management and enhance accountability. Investors remain supportive but will expect positive same-store sales growth in the US by the fourth quarter of the fiscal year ending in late September, according to Brian Yarbrough, an analyst at Edward Jones.