Starbucks Struggles Amid Sales Slump, But Turnaround Plan Offers Hope

Starbucks reported disappointing earnings this quarter, missing Wall Street expectations on both revenue and profit. Despite a continued drop in same-store sales, CEO Brian Niccol emphasized that the company’s "Back to Starbucks" turnaround strategy is gaining traction. In a video statement, Niccol highlighted progress in improving store operations and customer experience, stating that although financial improvements aren't visible yet, internal momentum is growing.

Among the key adjustments in the strategy, Starbucks is stepping back from aggressive automation efforts and instead reallocating resources to labor investment. This move led to increased operational costs during the quarter but is aimed at enhancing service quality. Niccol cautioned investors not to judge the company’s recovery solely based on short-term earnings per share, emphasizing that transformation efforts take time to reflect in the bottom line.

However, the company also faces broader economic headwinds. Recent tariffs introduced under President Trump are likely to impact green coffee bean prices, which make up 10% to 15% of Starbucks’ production and distribution costs. According to CFO Cathy Smith, volatility in coffee prices and the global trade environment could pose risks for the rest of the fiscal year. The company acknowledged these challenges in a regulatory filing, noting it is actively working to minimize financial fallout.

Financially, Starbucks reported a net income of $384.2 million for the fiscal second quarter, down significantly from $772.4 million the year before. Earnings per share came in at 34 cents, or 41 cents adjusted—well below the 49 cents analysts expected. Revenue reached $8.76 billion, falling just short of the anticipated $8.82 billion. Shares of the company dropped 6% in after-hours trading following the report.

Operating margin also declined to 6.9% from 12.8% as Starbucks poured money into its revival plan. Labor costs spiked due to increased staffing across U.S. cafes. Meanwhile, spending on new equipment was scaled back. The company has abandoned plans to deploy its Cold Pressed Cold Brew system and paused installation of new food-heating equipment. Niccol explained this shift reflects a belief in a more labor-intensive model to boost efficiency and customer connection, while controlling capital expenditures.

Internationally, Starbucks increased promotional spending to attract customers and recorded restructuring costs related to simplifying its corporate structure. Even excluding these restructuring expenses, the company's adjusted earnings still lagged expectations. While net sales rose 2%, same-store sales dropped for the fifth consecutive quarter. This decline reflects growing consumer demand in both the U.S. and China for more affordable coffee options.

Since taking the helm in September, Niccol has been steering the company back to its core values—coffee quality and customer service. Although financial results remain weak, early signs suggest customers are responding well to the revamped marketing and improved service speeds. Niccol has set a goal of fulfilling every order within four minutes, aiming to enhance efficiency and satisfaction.

Despite efforts, global same-store sales declined 1%, driven by a 2% fall in transactions. In the U.S., the situation was more dire, with a 4% drop in visits leading to a 2% decline in same-store sales. In China, same-store sales remained flat, with transaction growth offset by a drop in average spend per visit. As part of its recovery, Starbucks has suspended its 2025 forecast and initiated corporate layoffs, including the elimination of 1,100 positions in February. Looking forward, Starbucks plans to elevate the in-store experience with upgraded seating and refined design, while enhancing its innovation process and improving operational algorithms to support baristas and better meet customer needs.