When Brian Niccol took the reins of Starbucks (SBUX) in September, he challenged himself to revive a coffee empire struggling with slowing sales and waning customer traffic.
Wall Street welcomed the move. Cowen analyst Andrew Charles famously called Niccol, the former Chipotle (CMG) CEO, “a Hall of Fame restaurant CEO.”
But eight months in, the turnaround is nowhere near.
Starbucks has now posted four straight quarters of declining sales, including its most recent Q2 earnings report.
In the three months ending March 30, sales at Starbucks stores open at least a year in North America fell by 1%, a much steeper drop than analysts were expecting.
The company’s profit was cut in half, falling to $384 million. After adjustments, earnings came in at 41 cents per share, which was significantly below Wall Street’s forecast of 49 cents.
Revenue did grow 2% year-over-year to $8.76 billion, but still came in lower than the $8.83 billion analysts had predicted. While international sales rose 2%, U.S. sales declined 2%.
“I never like to have negative results or earnings that aren’t growing,” Niccol said in a recent Yahoo Finance interview. “We’ve got to be honest with the reality that the results weren’t great in the quarter. But when you look behind the scenes, there’s a lot of great things happening.”
Inside Niccol’s turnaround plan
Niccol’s “Back to Starbucks” plan focuses on restoring the brand’s identity as a neighborhood coffeehouse: better vibes, better service, and a sharper cultural focus.
And that kind of shift takes time, analysts say.
“Change management doesn’t come easy,” Bernstein analyst Danilo Gargiulo told Yahoo Finance. He believes it could take six to twelve months before the turnaround shows up in the numbers but says Niccol has the “right strategy in place.”
Now the second-largest restaurant chain globally — behind only McDonald’s — Starbucks may have lost some of its original edge as it expanded.
“Starbucks was trying to be everything for everybody and not necessarily owning a specific space,” Gargiulo said. “Brian Niccol is basically saying, look, we need to own one space really well—and that’s our stores and our coffee.”
The company is currently reviewing its store portfolio. Some locations may be renovated; others could close.
Asked whether investors should focus on store sales or profits over the next two quarters, Niccol said, “We should be judged on the progress we’re making to turn this business around.”
“Earnings is an outcome of us doing the right things in our business, from a culture standpoint to a people standpoint and a customer standpoint,” he added.
“If we do all those things right, we’ll get growth on the top line, and we’ll make sure that growth travels to the earnings.”
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