Updated Version 3 - Starbucks Annual Profit Exceeds Expectations, Business Recovery Momentum Strengthens

Added executive background information in paragraph 2; commented on the modernization process in paragraph 6; included analyst commentary in paragraphs 11-12; included comments on supply chain in paragraph 14

Reuters, October 29 - Starbucks SBUX.O is forecasting annual profits to exceed expectations, indicating that the cost-cutting and operational reforms spearheaded by CEO Brian Niccol over the past two years are beginning to bear fruit.

During the earnings call, Niccol repeatedly told investors that the “Reinvention of Starbucks” strategy is no longer a restructuring plan but has become a growth plan.

The company said it plans to invest about $1 billion in stock buybacks.

As part of the “Reinvention of Starbucks” transformation plan, Niccol has simplified menus, optimized staffing, and shortened wait times over the past two years, helping the coffee chain achieve steady sales growth, even as investors grow increasingly concerned about its ability to restore profitability (link).

Starbucks has been managing costs through restructuring, including layoffs (link) and store closures (link), aiming to offset the nearly $500 million in labor investments resulting from its sweeping reforms.

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Niccol said that in the coming year, the focus will be on technology and modernization, and provided examples: such as an AI system that assists baristas in handling drive-thru orders and a system capable of “identifying customers upon arrival at events, displaying personalized digital menus, and facilitating a more convenient payment process.”

According to data compiled by London Stock Exchange Group (LSEG), the Seattle-based company predicts annual adjusted earnings per share of $3.15 to $3.25, compared to analyst expectations of $3.14 per share.

The world’s largest coffee chain reported that fourth-quarter global same-store sales rose 7.2%, surpassing analysts’ anticipated 5.4% increase. Adjusted earnings per share were $0.80, exceeding the expected $0.72.

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Earlier this year, Starbucks completed a deal with Boyu Capital (link), selling a controlling stake in its China business, valued at $4 billion, in an effort to revive growth in the region. However, the negative impact of the deal caused its full-year revenue forecast to shift from a projected 1.4% increase to a 1% decline.

In after-hours trading, the company’s shares fell about 2%.

Consumer Edge analyst Michael Gunther said he was encouraged by the sales growth data, noting that Starbucks is benefiting from consumer demand for “affordable indulgences.” However, he pointed out that the chain is losing younger customers to competitors such as 7 Brew.

“The guidance is weak, but perhaps they are trying to lower market expectations,” said Annex Wealth Management analyst Brian Jacobsen, adding that he believes the company still has growth momentum.

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Earlier this month, following reports that Starbucks might acquire Chipotle Mexican Grill CMG.N, the company dismissed (link) the acquisition rumors. The transaction could have become the largest merger in restaurant industry history and marked Niccol’s return to the burrito chain he led for six years.

According to a Reuters report in February, Niccol said he had made progress in revamping Starbucks’ supply chain—a system whose disarray had led to product shortages for years (link). Niccol stated the company is testing new methods to forecast product demand, and daily delivery coverage now reaches nearly 90% of all North American stores.

(To assist non-native English speakers, Reuters has provided automated translations of its reports into several other languages. Because automated translation may be inaccurate or lack context, Reuters does not guarantee the accuracy of the automated translation and offers it solely for readers’ convenience. Reuters accepts no liability for any damages or loss arising from the use of the automated translation function.)