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Starbucks Faces Declining Traffic, Flat Revenue: Will Its Turnaround Plan Succeed?

Written by Nicholas Morine

Image Courtesy of Starbucks

Starbucks reported its Q1 fiscal 2025 earnings on Jan. 28, and the results were a bit of a mixed bag.

According to Business Insider, the company's turnaround plans — seeking to rectify flagging sales and traffic — appear to be working, at least somewhat. While revenue remained flat versus year-ago levels, coming in at $9.4 billion, this was a bit of bright news set against more ominous markets.

Traffic remains a concern for the green-and-white brand, with same-store sales dipping by 4% in the U.S., per the company's earnings report, and 6% in China, the second-largest market for Starbucks. Further, the company's net income plummeted by around 23% to $780 million, down from $1 billion a year ago. Starbucks attributed that tumble to increased wages and benefits for frontline staff, as well as to ending the practice of charging a premium for nondairy products such as oat and soymilk in its beverages.

Starbucks CEO Brian Niccol Upbeat Over Company's Future

While the company's recent earnings call represented a good news/bad news scenario, Starbucks CEO Brian Niccol remained positive over the company's performance during his brief tenure at the helm thus far.

“Despite near-term challenges, we have significant strengths and a clear plan,” Niccol said during the earnings call. “We’re on track to turn the business around. We’re where we want to be one quarter in, but much of our work is just beginning.”

Niccol has enacted several changes to company policy in short order after taking the CEO chair. The company's open-door policy has been revoked, and a return to customizing to-go orders with the customer's name written on the cup by the barista is in play. All customers can now receive free refills on certain for-here coffee or tea orders rather than just Rewards members, and in-store beverage orders can be served in ceramic mugs, as Yahoo! Finance reported. Condiment bars, a casualty of the COVID-19 pandemic, are also making a return, taking a bit of work away from baristas and hopefully allowing them to increase their serve times.

Furthermore, Niccol has underscored a goal of having coffee in customer hands in four minutes or less, increasing labor hours at 3,000 locations and streamlining Starbucks' mobile ordering systems in an effort to reach this metric. However, as things stand, the CEO admitted that there is a lot of work to be done in the days ahead.

"We're not where we want to be yet. But I'm confident we stay after these strategies. We continue to test and learn. We listen to the feedback. We take action. We will return to growth," Niccol said.

Starbucks Could Expand Further Into Texas, the Southeast as Niccol Oversees Exec Shakeup

The New York Times reported that Niccol surprised many when he announced a plan to double the number of Starbucks stores in the U.S., indicating that one very specific region was rife with opportunity.

“Places like Texas, the southeast. As we continue to open stores in those areas, they are opening with great economics,” the CEO said.

Further, Niccol is overseeing a significant executive shakeup concerning North American operations. Sara Trilling, president for North America, and Arthur Valdez, head of Starbucks’ supply chain, are making an exit. Meanwhile, Mike Grams — president and COO for Taco Bell — will be taking on the role of chief stores officer for North America and will be responsible for store performance more broadly. Meredith Sandland, chief executive of Empower Delivery, will head up store development and design.

Wall Street Somewhat Skeptical Over Starbucks' Fortunes in the Near Future

Given that Starbucks' most recent earnings report was neither disastrous nor impressive, Wall Street analysts appear lukewarm over the prospects of buying the stock.

Yahoo! Finance data suggested that analysts are marking down earnings projections for 2025, with Citi analyst Jon Tower weighing in on the matter.

"We see puts and takes to the same-store sales narrative in the coming quarters (mobile ordering adjustments, 30% stock-keeping unit rationalization), and, particularly with coffee prices continuing to press higher, we find it hard to make the long case for risk-reward without a better anchor for the 'right' level of re-based earnings power in fiscal year 2026," Tower stated, indicating a neutral rating on the company's shares.

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