Oct 29 (Reuters) – Starbucks forecast annual profit above expectations, signaling that cost cuts and operational changes under CEO Brian Niccol’s two-year turnaround efforts are taking root.
Niccol repeatedly told investors on the earnings call that his “Back to Starbucks” strategy is no longer a turnaround, but a plan for growth.
The company said it aims to deploy about $1 billion towards share repurchases.
Niccol has spent the past two years simplifying menus, improving staffing levels, and reducing wait times as part of his “Back to Starbucks” turnaround, helping the coffee chain achieve stable sales growth, although investors have been increasingly focused on whether the company can restore profitability.
Starbucks has been addressing its costs through restructuring, including layoffs and store closures, aiming to offset the nearly $500 million in labor investments as part of the overhaul.
Niccol said the coming year will have a focus on tech and modernization, listing as examples an AI system to assist baristas in taking drive-through orders, as well as systems that could “recognize participating customers as they arrive, present personalized digital menus and make payment more effortless.”
The Seattle-based company forecast annual adjusted earnings per share of $3.15 to $3.25, compared with analysts’ expectation of $3.14 per share, according to data compiled by LSEG.
The world’s largest coffee chain reported fourth-quarter global same-store sales growth of 7.2%, which surpassed analysts’ expectations of a 5.4% rise. Adjusted earnings per share came in at 80 cents, above the 72-cent estimate.
Starbucks closed its deal with Boyu Capital to sell control of its Chinese operations earlier this year, valuing the business at $4 billion, intending to jump-start growth in the region, the hit from which pushed its annual revenue forecast to a 1% decline, compared with expectations of a 1.4% rise.
Shares of the company were down about 2% in extended trading.
Michael Gunther, an analyst at Consumer Edge, said he was encouraged by the sales growth figures, and that Starbucks has benefited from consumer demand for affordable indulgences. But he said the chain is losing younger customers to competitors like 7 Brew.
“The guidance was weak, but perhaps they’re trying to set low expectations,” said Brian Jacobsen, an analyst with Annex Wealth Management, adding that he believes the company has momentum.
Earlier this month, the coffee chain quashed talk of a deal to acquire Chipotle Mexican Grill following reports of a potential deal, which could’ve been the largest ever involving restaurants and would have reunited Niccol with the burrito chain he led for six years.
Niccol said progress had been made in his efforts to transform Starbucks’ supply chain – whose tangles have caused product shortages over the years, Reuters reported in February. Niccol said the company is testing new ways to forecast demand for products, and also that daily deliveries are reaching close to 90% of North American stores.
(Reporting by Neil J Kanatt in Bengaluru and Waylon Cunningham in New York; Editing by Pooja Desai, Maju Samuel and Aurora Ellis)
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