Starbucks has reported its first quarterly increase in sales for the January to March period, ending a streak of over a year without growth. However, the company acknowledged that there is still substantial work ahead in their ongoing turnaround efforts. The second fiscal quarter faced challenges, with store traffic not meeting expectations and earnings falling short. Starbucks’ Chairman and CEO remarked that while some investments take time to yield results, the company is progressing rapidly in the right direction.
For the quarter, the Seattle-based coffee company saw a 2% rise in revenue, reaching $8.76 billion, but this fell short of analysts’ predictions, which expected $8.83 billion. CEO Brian Niccol, who joined Starbucks last fall when the company was struggling, said that recent measures have started showing positive effects. Enhancements in staffing have led to quicker and friendlier service. The company is implementing simplified menus to boost store efficiency, and new store layouts aimed at inviting customers to linger are set to debut in New York and Los Angeles soon.
Starbucks is piloting a program to better time mobile orders, resulting in reduced wait times in drive-thru lanes and within stores, frequently coming in under the four-minute threshold—a key target for Niccol. The program aims to expand to 3,000 locations by the end of the fiscal year. Boosting staff levels and allowing employees to take on shifts at nearby locations are part of the strategy, correcting past issues where reduced staffing led to increased wait times and strained staff morale.
These improvements have required significant investment, leading to a 50% decline in net income to $384 million during the fiscal second quarter. Adjusted earnings dropped nearly 40% to 41 cents per share, not meeting Wall Street predictions of 49 cents per share. Despite rising costs from tariffs, Niccol reaffirmed that Starbucks would not raise prices this fiscal year.
According to Starbucks’ CFO, the company is transitioning its supply operations, with a current reliance on coffee sourced from 28 countries, predominantly in Latin America. As tariffs impact goods and ingredients from China, Starbucks is shifting production towards local suppliers. Same-store sales on a global scale declined by 1%, which was slightly more than the forecasted 0.8% drop by analysts. U.S. same-store sales decreased by 2%, whereas international sales saw a 2% rise, with increased traffic noted in China.
Niccol remains optimistic that enhanced customer service and more comfortable store environments will eventually reverse declining sales, even amid potential economic fluctuations. He suggested that Starbucks offers an affordable luxury that consumers will continue to enjoy despite economic challenges. In response to these mixed results, Starbucks’ shares experienced a 6% decline in after-hours trading on Tuesday.