Faster coffee. More baristas. More seating.
Despite headwinds from higher coffee prices and tariffs on certain products, Starbucks is seeing progress on its turnaround strategy, its chief executive, Brian Niccol, told investors and Wall Street analysts on a quarterly earnings call on Tuesday.
“We’re not just building back our business,” he said. “We’re building back a better business.”
Global same-store sales for the first three months of the year fell 1 percent from a year earlier, an improvement from recent quarters. Global revenues rose 2.3 percent to $8.7 billion in the quarter while net earnings fell 50 percent, to $384.2 million, from year-earlier levels.
In China, the second-largest market for Starbucks and one that has struggled in recent quarters, same-store sales were flat, a considerable improvement from a year earlier, when they were down 11 percent. Last fall, Mr. Niccol said the company might seek a strategic partner in China, but he provided no update on Tuesday’s call.
The company’s stock was down more than 6 percent in after-hours trading.
Starbucks attributed some of the steep decline in profit to the hiring of additional workers for its turnaround strategy and various restructuring costs. During the quarter, the company announced plans to cut 1,100 corporate employees.
At the same time, Mr. Niccol said, the company is hiring more baristas and piloting a program that allows them to more easily pick up and trade shifts in their area.
In response to customer complaints about wait times, especially during peak periods, Starbucks is testing an order-sequencing program. In stores trying the new program, cafe wait times dropped by an average of two minutes, with a majority of customers now waiting less than four minutes for their coffee at peak times, Mr. Niccol said.
And for customers who groused about the removal of seating at some locations, Mr. Niccol said the company was moving quickly to bring it back. “We’re making it more enticing to stay in our cafes with ceramic mugs and an expanded free-refill policy and the return of great seats,” he said.
Still, coffee prices, which hit a 50-year high in the quarter because of weather-related shortages and heightened demand, are a concern, as is President Trump’s tariff campaign on many countries. On the call, Cathy Smith, who joined Starbucks as the chief financial officer in March, said it got its coffee from 28 countries, a majority in Latin America. She added that coffee made up less than 15 percent of the company’s total product and distribution costs and that Starbucks was looking to “further diversify and redirect coffee shipments as appropriate.”
She also noted that some Starbucks merchandise was from China and that for the winter holiday season, the company was already shifting production of some products to alternative locations.
And while the company still sees the potential to expand the number of stores in the United States, Mr. Niccol said, it is slowing the pace as construction and renovation costs climb.
“We still believe there’s a tremendous opportunity to, you know, double the store count from where we are today,” he said. “I just want to double it with the right build at the right cost.”
Content Source: www.nytimes.com