A Starbucks turnaround is brewing - but perhaps not quickly enough for investors

By Bill Peters

The coffee chain beat expectations on a key sales metric, but its stock was still moving lower

Starbucks has tried to refurbish its stores.

New drinks and coffee-shop makeovers have helped Starbucks regain consumers, but thanks to changes to its business in China, the company still forecast falling sales in its new fiscal year.

Starbucks (SBUX) said Thursday that it expects revenue to fall around 1% for the fiscal year that ends next September, due mainly to a recent decision to shift its China retail operations to a joint venture. Sales of those stores are no longer included in Starbucks' overall revenue figures.

On a call with Wall Street analysts following the company's results, Starbucks executives kept an upbeat tone about the business - highlighting menu upgrades, novelty items and merchandise sales that they said have resonated with people.

Starbucks's espresso refreshers, matcha items and artisanal baked goods showed "continued strength" in the quarter, CEO Brian Niccol said on the call. So did the return of the company's Unicorn Frappuccino and its Peanuts merchandise collaboration.

See also: Snoopy cups at Starbucks and McDonald's SpongeBob toys are commanding huge markups on eBay

Niccol said such initiatives give customers more reasons to choose Starbucks, and he promised more beverages, food and merchandise collections to come in the new fiscal year. The latest quarter showed that creating "customer moments" and leaning in on merchandise has potential, he added.

"I'm super excited about what's ahead," Niccol said.

For its September quarter, Starbucks reported adjusted earnings of 80 cents a share. Overall revenue came in at $9.1 billion, down 4% year over year. The company saw a 7.2% rise in same-store sales, or those at established locations, marking the fifth consecutive quarterly gain for that metric.

Analysts polled by FactSet expected adjusted earnings per share of 72 cents for Starbucks's September quarter on revenue of $9.22 billion, as well as a 6% same-store sales gain.

The company's stock was falling around 1.8% in after-hours trading Thursday.

Starbucks shares were up more than 25% so far this year at Thursday's close amid optimism over the company's turnaround plans, which have shown signs of working even as competition from smaller chains increases.

Under Niccol, Starbucks has tried to refurbish its coffeehouses to make them more welcoming, and has also moved to clean up its online ordering and pickup process. The company last month said it would close around 250 underperforming stores.

Over the summer, Starbucks said it plans to test sparkling beverages in some areas. Executives say the chain has also caught on with more Gen Z consumers.

Claudia Assis contributed.

-Bill Peters

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10-29-26 2014ET