Starbucks' management overhaul strategy, launched under the rallying cry "Back To Starbucks" to revive the old coffeehouse vibe and win back customers, is paying off. Even as global consumer sentiment weakens amid the Iran war's fallout, Starbucks' sales are rebounding.
On the 28th (local time), Starbucks said revenue for the second quarter of the fiscal year ended on the 29th of last month was about $9.5 billion (about 14 trillion won), up 9% from a year earlier. That far exceeded the market consensus of $9.1 billion (about 13 trillion won). Second-quarter net income also surged more than 30% to $510.9 million (about 754 billion won) from a year earlier. Same-store sales at locations open at least a year rose 6.2% on increased traffic, also beating the market's 4% forecast.
The strong results were driven by sales growth in the United States, Starbucks' largest market. U.S. same-store sales rose 7% from a year earlier, helped by a second straight quarter of traffic gains. Starbucks said sales increased across all income brackets and age groups in the U.S. CNBC said the figures were "an indicator that Starbucks' recovery is gaining traction."
To break a yearslong slump, Starbucks in 2024 hired Brian Niccol, then the chief executive officer (CEO) of fast-food chain Chipotle. During Niccol's tenure, Chipotle's profits rose about sevenfold and its stock gained about 800%. Expectations ran high, sending Starbucks shares jumping when news broke that Niccol would take over as CEO.
After taking the helm, Niccol declared a sweeping "overhaul." Under his direction, Starbucks invested hundreds of millions of dollars to improve customer service. It trimmed discounts, added more comfortable seating in stores, and aggressively rolled out new menu items. Concluding that long peak-time waits were a key cause of customer churn, it also slashed beverage-making times.
It also brought back the once-discontinued self-serve bar to again offer milk and syrups and let customers choose alternative milk at no extra charge for milk-based drinks, moves aimed at reviving the old coffeehouse feel. Starbucks ended its open-restroom policy, which had sparked controversies big and small in North America, limiting restrooms to paying customers.
Some investors voiced discontent when the overhaul failed to show visible results quickly, but the latest numbers eased those concerns. The Financial Times (FT) said, "The second-quarter results should help dispel worries that normalizing the group's operations would take too long and require excessive expense," adding, "Starbucks' strong performance in the U.S. came despite weakened consumer sentiment aggravated by the recent rise in oil prices due to the Iran war."
CEO Niccol also said, "The second quarter was a turning point, with the 'Back To Starbucks' strategy driving growth in both sales and net income." On a conference call after the earnings release, he said, "Customers now think Starbucks purchases are worth it compared with a year ago," adding, "There is clearly more to do, but we believe we are on a recovery track."
Starbucks' strong results are drawing even more attention because they come as the overall dining industry struggles. Domino's Pizza said the previous day that March sales fell due to weaker consumer sentiment, underscoring a sharp pullback in dining-out expenditure. Even so, Starbucks projected global and same-store sales would rise at least 5% this fiscal year, an upgrade from its prior 3% outlook.
CNBC said, "Amid the recent war between the United States and Iran and concerns over higher fuel expense, few corporations that have released quarterly results in recent weeks have raised their annual guidance," adding, "Starbucks stands out as an exception."