Faster coffee. More barista. More seats.
Despite headwinds from higher coffee prices and tariffs for certain products, Starbucks is seeing progress in its turnaround strategy, its CEO Brian Nicole spoke to investors and Wall Street analysts about Tuesday's quarterly revenue call.
“We're not just building a business,” he said. “We're building a better business.”
The same store sales worldwide for the first three months of the year fell by 1% from the previous year, improving from the recent quarter. Global revenue rose 2.3% quarter to $8.7 billion, while net income fell 50% to $384.2 million from annual levels.
In China, Starbucks' second-largest market, and in the market that has been struggling in the recent quarter, sales in the same store remained flat, with a significant improvement from a year ago when the 11% declined. Last fall, Nicole said the company may seek strategic partners in China, but did not provide updates in Tuesday's call.
The company's shares fell more than 6% in after-hours trading.
Starbucks attributed part of the sharp decline in profits to the employment of additional workers due to its turnaround strategy and various restructuring costs. During the quarter, the company announced plans to cut 1,100 corporate employees.
At the same time, Niccol said the company is steering a program that will hire more baristas and allow them to more easily pick up and trade shifts in their own area.
In response to customer complaints, particularly regarding waiting times during peak periods, Starbucks is testing its order sequencing program. In stores testing the new program, cafe wait times dropped in an average of two minutes. Most customers wait less than four minutes for coffee at peak times, Nicole said.
And for customers tired of removing seats in several locations, Nicole said the company is moving quickly to bring it back. “We're making staying in a cafe with ceramic mugs and an expanded free fill policy and a great seating return,” he said.
Still, like President Trump's tariff campaign in many countries, coffee prices, which reached quarterly 50-year highs due to weather-related shortages and increased demand, are a concern. By phone, Kathy Smith, who joined Starbucks in March, said she received coffee from 28 countries, a majority in Latin America. She added that coffee accounts for less than 15% of the company's product and distribution costs, and that Starbucks is considering “to diversify and redirect coffee shipments further as needed.”
She also said that some Starbucks products are from China and during the winter holiday season, the company had already moved production of some products to alternative locations.
And while the company still sees the possibility of expanding its U.S. store count, Nicole said the pace is slowing down as construction and renovation costs rise.
“We still believe there is a great opportunity to double the number of stores from where we are today,” he said. “I just want to double the amount with the right build at the right cost.”
