Starbucks shares tumble after warning of drop in sales, profit

Starbucks suspended its forecast through the next fiscal year as new CEO Brian Niccol looks to turn around the coffee giant struggling with falling demand for its pricey drinks.

The coffee chain also reported preliminary fourth-quarter results, saying same-store sales, net revenue, and profit declined, weighed down by weak demand in the US.

Its shares fell about 4% in after-hours trading. The stock has gained nearly 28% since the company named Niccol as CEO in early August.

Niccol, who was named to the top job in a surprise move in August, said, “It’s clear we need to fundamentally change our strategy so we can get back to growth and that’s exactly what we are doing with our ‘Back to Starbucks’ plan.”

He said Starbucks would simplify its “overly complex menu, fix our pricing architecture.”

The company now expects comparable sales to decline 6% in the US and 14% in China for the fourth quarter ended Sept. 29. It suspended annual outlook for the fiscal year that will end in September 2025.

“Despite our heightened investments, we were unable to change the trajectory of our traffic decline,” said Chief Financial Officer Rachel Ruggeri. “We are developing a plan to turn around our business, but it will take time.”

The company increased its quarterly dividend to 61 cents from 57 cents per share, to boost investor confidence in the turnaround plan, Ruggeri said.

Starbucks’ rewards program did not help improve customer traffic. As part of the turnaround plan, Niccol said the company aimed to change its marketing efforts, and shift focus to all customers and not just “Starbucks Rewards” members.

Before taking the helm at Starbucks, Niccol was CEO of Chipotle Mexican Grill, where he owned the burrito maker’s problems, agreed with critics, and revitalized sales.

At Starbucks, Niccol took over from Laxman Narasimhan, inheriting several challenges at the coffee giant that has been under pressure from an activist investor to improve its business.

The coffee chain is also suffering from increased competition and weak demand in two of its top markets, the US and China.

Niccol has laid out his plan for the first 100 days focused on enhancing customer experience at its stores in the US.

The company still plans to hold its scheduled fourth-quarter earnings conference call on Oct. 30.