By Juveria Tabassum
(Reuters) -Starbucks faces challenges in reviving its business, CEO Brian Niccol said on Tuesday, after the coffee giant posted disappointing global comparable sales and profit with inflation and economic uncertainty driving up costs and dampening U.S. demand.
Investors have placed their bets on Niccol’s turnaround strategy for the brand, whose sales have fallen for four straight quarters, by reducing production and service times and investing in stores to improve customer experience.
"Our financial results don’t yet reflect our progress, but we have real momentum with our ’Back to Starbucks (NASDAQ: SBUX )’ plan," Niccol said in a statement.
Starbucks paused rolling out its Siren System store revamp program, launched under former CEO Laxman Narasimhan, because it was capital heavy, said Niccol, who had helped revive Chipotle Mexican Grill (NYSE: CMG ) as CEO of the burrito chain.
The company will focus on investing in improving front-end delivery instead of kitchen equipment, Niccol said on a post-earnings call. "The equipment doesn’t solve the customer experience that we need to provide."
Niccol said Starbucks was improving service speed with the right staffing and deployment, and that its refreshed marketing was resonating with customers.
Starbucks will also review its U.S. store portfolio as it rolls out labor-focused technological changes including a pilot program that allows customers to schedule their mobile orders, he said.
However, consumers are growing more cautious as U.S. President Donald Trump’s erratic trade tariffs have created economic uncertainty and threaten to fuel inflation. U.S. restaurant visits and spending weakened in February and March.
Starbucks’ shares fell 6.5% in extended trading. The stock, which had surged in the months following Niccol’s appointment as CEO, is down about 7% so far this year.
North American same-store sales fell 1% for the fiscal second quarter ended March 30, worse than the 0.24% drop estimated by analysts in an LSEG poll. The company said sales in Canada returned to growth in the quarter.
TURNAROUND TIMELINE
It may take time for traffic to reaccelerate because changes in stores and reinstating its coffee house roots could take at least another three to six months, said Bernstein analyst Danilo Gargiulo.
Starbucks is paring down promotions and discounts, and relying less on its loyalty program as it invests in broader marketing.
The average ticket, or amount spent by customers per visit, was up 3% in the second quarter.
The company said it will localize and move production as needed to mitigate the impact of U.S. tariffs on imports from China.
The company’s international business improved slightly, with sales unchanged in China, its second-largest market, after four straight quarters of decline. Starbucks said it was committed to growing business in China long-term.
International comparable sales rose 2%, compared with estimates of a 1.13% drop.
Gross margin fell 590 basis points in the quarter and the company reported adjusted earnings per share of 41 cents, missing estimates of 49 cents.
Total same-store sales declined 1% in the second quarter, compared with analysts’ average estimate of a 0.26% fall. Comparable sales had declined 4% in the preceding three-month period.