Back in August, Brian Niccol was all set to take over.
Niccol, the former CEO of Chipotle (CMG) , had been named chairman and chief executive of Starbucks (SBUX) in a bid to get the struggling coffee chain percolating again.
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“I am excited to join Starbucks and grateful for the opportunity to help steward this incredible company, alongside hundreds of thousands of devoted partners,” Niccol said in a statement.
"As I embark upon this journey, I am energized by the tremendous potential to drive growth and further enhance the Starbucks experience for our customers and partners, while staying true to our mission and values," he said.
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Niccol had been the CEO of Yum! Brands' (YUM) Taco Bell, where he was credited with turning the fast-food chain around. And during his time at Chipotle, the company’s stock price increased by almost eight times.
Mellody Hobson, who was Starbucks' board chair at that time, described Niccol as “a culture carrier who brings a wealth of experience and a proven track record of driving innovation and growth.”
“Our board believes he will be a transformative leader for our company, our people, and everyone we serve around the world," said Hobson, who became lead independent director.
These were some dark days for the Seattle-based retailer.
Starbucks CEO: 'we need to change our strategy'
The company had ousted Niccol's predecessor, Laxman Narasimhan, who had been appointed to succeed interim leader and founder Howard Schultz, after investors chilled on his efforts to turn the company around.
Elliott Investment Management and Starboard Value were reportedly taking stakes in Starbucks and pushing for major changes in its management and operations.
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Things heated up in July when Starbucks posted muted fiscal-third-quarter earnings and said sales in key international markets, particularly in China, continued to decline.
Niccol took over on Sept. 9 and his journey has gotten off to a rough start.
On Oct. 23, Starbucks released preliminary quarterly results that showed sales were still falling.
The company’s preliminary net sales fell 3% to $9.1 billion and preliminary adjusted earnings came in at 80 cents per share, down 24% from a year ago.
Analysts were expecting the company to report fiscal fourth-quarter earnings per share of $1.03 and revenue of $9.38 billion.
Starbucks also plans to suspend guidance for fiscal year 2025.
The company said the results were primarily driven by softness in North America revenue, specifically a 6% decline in US comparable store sales.
In addition, China's comparable store sales dropped 14%, weighed down by intensified competition and a soft macro environment that slowed consumer spending
“Our fourth quarter performance makes it clear that we need to fundamentally change our strategy so we can get back to growth, and that's exactly what we are doing with our ‘Back to Starbucks’ plan,”Niccol said.
He added that he had spent his first several weeks in stores "engaging with and listening to feedback from our partners and customers."
"It’s clear that Starbucks is a much-loved brand," Niccol said. "We need to focus on what has always set us apart — a welcoming coffeehouse where people gather and where we serve the finest coffee, handcrafted by our skilled baristas."
He said that he plans to reveal more details during the Oct. 30 earnings call and is already refocusing marketing, simplifying the menu, and addressing pricing issues.
Analyst says CEO 'zeroing in on correct issues'
Starbucks shares have barely moved since the start of 2024, and the stock is up a mere 2.2% from a year ago.
Several investment firms issued research reports after the company released the preliminary results.
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Barclays analyst Jeffrey Bernstein kept an overweight rating on Starbucks with a $110 price target after the company's announcement, according to The Fly.
Bernstein said that he finds it best to separate the current more challenging fundamentals from Niccol's vision.
While the new 2025 outlook and updated long-term algorithm will take time to formulate, investors will be buyers of the CEO's vision, the analyst said.
Bernstein believes very few companies across the consumer landscape offer proven, industry-leading growth at scale and that "such scarcity value provides valuation support" for Starbucks.
Stifel analyst Chris O'Cull lowered the firm's price target on Starbucks to $105 from $110 and kept a buy rating on the shares.
Although the top-line results were slightly weaker than expected, O'Cull said that he believes the degree of margin compression and the lack of guidance were less expected.
He added that he believes Niccol is “zeroing in on the correct issues, and his track record suggests he can maintain the focus necessary to position the company to execute those initiatives.”
Citi analyst Jon Tower lowered the firm's price target on Starbucks to $96 from $99 and kept a neutral rating on the shares.
The company's pre-announcement alluded to many strategic discussions in the investment community, including the re-investment in stores, investments in labor, and re-focusing on the in-store experience, potentially at the immediate expense of mobile transactions and sales.
It sounds like additional sales-rebasing could happen and Tower said that he expects a long-term growth algorithm more akin to global quick service peers rather than Starbucks' recent targets.
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