If stock prices are a bet on what will happen to a company soon, the Starbucks Corp. (NASDAQ: SBUX | SBUX Price Prediction) turnaround is in extremely deep trouble. Over the past three months, shares have collapsed 24% while the market is off by 3%. New CEO Brian Niccol describes himself as a turnaround expert. This expertise seems to have left him.
Starbucks hired Niccol as chief executive on August 13 of last year. He joined on September 9, and immediately wrote a letter to “all partners, customers and stakeholders.” He said he authored it not as CEO but as a customer. Among other things, he wanted baristas to have more control in Starbucks stores and consumers to have a better experience early in the day. Starbucks had a reputation for being slow to deliver food and beverages. He wanted Starbucks to return to its roots as a “community” coffee house. Starbucks shares rose.
In February, Niccol penned another letter. In this one, he said he would cut 1,100 as part of the company’s “Back to Starbucks” plan. At about the same time, he said Starbucks would reduce the items on its menu by 30% to speed service.
Finally, in April, he announced an updated dress code for store workers: “The more defined color palette includes any solid black short and long-sleeved crewneck, collared, or button-up shirts and any shade of khaki, black, or blue denim bottoms.” Each “partner” could have two t-shirts for free. Some Starbucks workers walked off the job temporarily. Niccol had angered a portion of his workers and showed many Starbucks customers that a wedge had formed between him and some of his baristas.
Starbucks Performance
More damaging than any of these new moves were the most recent earnings at Starbucks. The numbers were grim. Nevertheless, Niccol said, “We are on track, and if anything, I see more opportunity than I imagined.” He must have spotted something that inventors did not.
In the quarter, comparable store sales dropped 1%. Comparable store sales in China were flat. China is the company’s second-largest market. Earlier in the year, Chinese competitor Luckin Coffee announced a 36% increase in quarterly revenue year over year. Global revenue at Starbucks for its most recent quarter rose 2% to $8.8 billion, but per-share earnings fell 50% to $0.34.
Numbers from the current quarter need to be excellent.
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