Starbucks’ Quest for Revival: Can New CEO Brian Niccol Turn Things Around?
As the coffee giant prepares to release its first quarter fiscal year 2025 results, all eyes are on CEO Brian Niccol, who took the reins on September 9. Wall Street expects revenue to reach $9.32 billion, a slight dip from last year’s $9.43 billion. However, same-store sales and foot traffic are projected to decline 5.30% and 7.28%, respectively, year over year.
A Key Indicator: US Performance
According to Bank of America analyst Sara Senatore, the US performance will be a crucial indicator for the overall business. “If the US starts working again, it becomes very, very hard to make any kind of structural argument that the Starbucks brand isn’t good,” she noted. Analysts expect US same-store sales to drop 4.06%, compared to the 6% decline last quarter.
Turning the Brand Around
Citi analyst Jon Tower believes there is an opportunity to turn the brand around, but it will require time, effort, and a significant investment. The slow trajectory of same-store sales, store count, and earnings growth compared to prior years may deter investors.
A Year of Ups and Downs
In the past year, Starbucks stock has gained 5%, lagging behind the S&P 500’s 24% rise. However, the shares have surged 32% in the past six months, following Niccol’s appointment as CEO in August.
What to Expect: Bloomberg Consensus Estimates
Here’s what Wall Street expects from Starbucks’ first quarter fiscal year 2025 results:
- Revenue: $9.32 billion
- Adjusted earnings per share: $0.66
- Same-store sales: -5.30%
- North America: -5.04%
- US: -4.06%
- International: -6.10%
- China: -9.34%
- Foot traffic: -7.28%
- Ticket Growth: 1.87%
The Coffee Conundrum
With coffee futures up 80% in the last year, analysts say the risk to Starbucks’ margins should be limited. Bank of America estimates coffee makes up about 22% of Starbucks’ cost of goods, and the company hedges against commodity fluctuations with fixed price contracts.
Niccol’s “Back to Starbucks” Plan
As part of his plan, Niccol aims to refocus on coffee, improve pricing, and enhance service. Recent changes include eliminating extra charges for non-dairy milk, reintroducing personal touches like coffee in ceramic mugs, and implementing a Coffeehouse code of conduct.
Efficiency and Investment
Senatore believes general and administrative expenses are too high, making up 7.1% of total net revenue. She will be looking for more specifics on the kinds of investments Starbucks needs to make and where they can find sources to reinvest.
Leave a Reply