SBUX | Q4 2024

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Overview

• Non-GAAP EPS of $0.80 misses by $0.09.

• Revenue of $9.07B (-3.2% Y/Y) misses by $70M.

Takeaways

Q4 2024 was new CEO, Brian Niccol’s, first earnings report, and he didn’t hold back in acknowledging the company's challenges, describing the financial results as “very disappointing.”

In Q4, Starbucks’ consolidated revenue came in at $9.1 billion, down 3% from last year, which was largely driven by a 7% drop in comparable store sales. U.S. store sales saw a 6% decline, due to a 10% decrease in transactions, though partially offset by a 4% increase in the average ticket. With this, the company reported an adjusted earnings per share (EPS) of $0.80, down 24% from the prior year.

These lower numbers reflect a broader pattern of slowing customer traffic across all times of the day, with afternoon visits experiencing the steepest drop. Overall, these struggles, coupled with investments in employee wages and benefits, pulled down the operating margin to 14.4%, 370 basis points lower than last year.

Beyond the U.S., Starbucks’ international performance saw mixed results.

In China, for example, comparable store sales declined by 14%, resulting from an 8% drop in average ticket prices and a 6% drop in transactions. The Chinese market, which hit a milestone of 23.5 million active Starbucks Rewards (SR) members, is still seeing weaker overall traffic due to competitive pressures and a softer economy.

Despite these challenges, Starbucks continued to expand its footprint, adding 7% more stores globally. With this, Starbucks also announced a bright spot: a 7.5% dividend increase, showing commitment to rewarding shareholders even amid operational hurdles.

In response to the poor financial results, Niccol laid out his “Back to Starbucks” strategy, aiming to restore the brand to its roots as a welcoming coffee house that focuses on quality and customer experience. In other words, it’s a return to Howard Schultz’s original vision of making Starbucks the “third place.”

Niccol believes that Starbucks has drifted too far from its core by focusing narrowly on SR members and implementing a complex, over-extended menu that doesn’t always deliver on Starbucks’ brand promise.

He said that simplifying the business, providing a consistently great customer experience, and reducing operational complexity are at the heart of his new plan.

One of the key goals in Niccol’s plan is to improve service speed and quality. Starbucks aims to get orders out to customers within four minutes and deliver mobile orders promptly.

To achieve this, the company is prioritizing better staffing, especially during busy morning hours, and aiming to improve barista efficiency. The company also plans to cut down on mobile ordering congestion by updating its sequencing algorithm and setting new limits on order volume during peak times.

Mobile orders, which currently drive more than 30% of transactions, have often created overwhelming demands on store staff, impacting service quality and customer experience.

Niccol also laid out several other planned changes that will hopefully enhance customer experience.

Starbucks will reintroduce coffee condiment bars, so customers can customize their brewed coffee easily. This will also save time for the baristas, who will no longer have to doctor up the customers’ drinks for them.

They’re also rolling out Clover Vertica brewers across all U.S. company-operated locations to offer more premium, on-demand coffee options. Additionally, the brand will be paring down its menu to focus on its core coffee offerings, aiming to simplify choices without sacrificing quality.

In terms of pricing, Starbucks is also making an effort to simplify and make it more customer-friendly.

Starting November 7, they’ll remove the upcharge for non-dairy milk, a popular customization, in U.S. company-owned cafes. Niccol also announced that Starbucks won’t increase prices in North American company-operated stores through fiscal year 2025, aiming to provide stability for customers amid the changes.

Alongside these customer-focused shifts, Starbucks is rethinking its physical spaces and the in-store experience—which I’m very excited about. Plans include adding more comfortable seating, bringing back ceramic mugs for those who dine in, and creating an environment that encourages customers to linger and enjoy. Once again, a return to the “third place.”

Niccol emphasized that success will come by sticking to Starbucks’ identity as a community gathering place, and by taking care of both customers and employees. With these ambitious changes, Starbucks hopes to reestablish itself as the go-to coffeehouse experience, revitalize customer traffic, and ultimately drive sustained growth.

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