SAVE THE DATE!

Starbucks started its new fiscal year with a flat performance, but that was better than many investors had anticipated and new CEO Brian Niccol didn't disguise that there's still lotsa work to do. On Q1 earnings call yesterday, the former Chipotle leader fleshed out vision for "Back to Starbucks" plan that calls for fewer but more impactful innovations, including stepup in matchas and other teas rather than relying just on cold bevs to recruit younger visitors. He's sticking to general plan to double current US footprint of 10,000 company-operated stores but made it clear that mix will include more drivethrus and other smaller-format stores such as those that have successfully been launched in markets like Texas and Southeast. And he's moving quickly to reshuffle leadership teams with view to greater accountability. "Q1, obviously, in 2025 results met our expectations, clearly show some signs of progress, but I think it&#39;s clear we still have much work to do," he said on investor call yesterday afternoon. Q1 was first quarter in which he's been fully in charge. In fiscal Q1, revenues stayed flat at $9.4 bil and many key indicators like same-store sales and store visits tracked downward, tho not as bad as some had feared. Same-store sales weakened by 4% as a 6% transaction decline wasn't fully offset by a 3% higher avg register ring. In North America market that's Niccol's initial fix-it focus, same-store sales declined 4%, on 8% decline in transactions partly offset by 4% increase in avg ticket. Overseas, same-store sales fell 4%, on 2% declines in both avg ticket and transaction volume. In China, where SBUX has been beset by aggressive local rivals, same-store sales fell 6% on 4% decline in avg ticket and 2% decline in transactions.Niccol's early moves to step up investments in staffing and move away from discounting in favor of better romancing the bean have put some pressure on margins: 180 pts due to labor investments to quicken throughput and return to "moment of connection" when barista hands finished bev to customer, 60 pts due to dropping upcharge for plantmilk as creamer. So far, tho, surge in coffee prices has had "minimal" impact on co, with green coffee comprising just 10-15% of total product and distribution costs, as CFO Rachel Ruggeri noted. Operating margin contracted 390 basis points from prior year to 11.9%.In Channel Development segment that houses Starbucks' CPG activities, from RTD Frappuccinos via PepsiCo to bagged coffees via Nestle, net revenues slipped 3% to $436.3 mil as Global Coffee Alliance with Nestle slashed sku's and global RTDs declined. Still, gross margin expanded to 47.7% from 46.8%.In discussion with investors and analysts, Niccol updated revival plan dubbed Back to Starbucks that he's inaugurated in wake of abrupt ouster of prior CEO Laxman Narasimhan, Howard Schultz's carefully groomed successor in role. There was no mention nor questions about unionization push in some Starbucks stores that's gotten co slapped with numerous labor violations, nor any about CPG biz housed within Channel Development. Some highlights:Store Buildout Includes Drivethrus, Other Smaller Units At time fast-growing rivals like Dutch Bros are relying on drivethru model, Niccol is seeking to balance return to inviting "third place" environment (tho he didn't belabor phrase on call) with lower store investment costs and greater convenience. As he put it, "one of the things I&#39;m really excited about is our ability to execute a smaller format that still has a great seat, OK, and delivers the partner experience or the engine behind the counter so that we can provide these craft drinks in a timely manner with that personal touch." He cited "tremendous success" with that format in markets like Texas and Southeast and "that&#39;s what gives us the confidence that we could double the store count."Fewer but Better Innovations, Less Discounting Recall that Niccol had moved quickly to reduce the frequency of discounts, many of them targeting Starbucks Reward members, to tune of a 40% drop in discounted transactions vs prior year. It dropped upcharge on plantmilk creamers "and identified several other steps we can take to make our pricing architecture more transparent for customers." At same time, it's doing more in its ads to romance the coffee experience in hope of drawing in lapsed and new customers.Meanwhile, Niccol is rethinking innovation strategy. That could first be seen in simplified holiday lineup "and we believe we have more opportunities ahead as we follow a disciplined stage-gate process to innovate and bring to market fewer better beverage and food offerings that reflect our premium positioning." That should bring a 30% reduction in both bev and food SKUs by the end of fiscal year this coming summer. But co won't stint on "breakthrough beverage and food innovation," relying on "our highly engaged Green Apron partners for inspiration, like we did with our Lavender lineup last year." It also will work harder to harness cultural moments as with pistachio-infused Dubai Matcha. And it will seek to address price barriers that might be keeping some customers away. So pricing will reflect that "this is a premium experience but we want to make sure we maintain being accessible."Younger Consumers Are Not Just About Cold Bevs It's been a mantra within the coffee retail biz that younger consumers prefer their drinks cold, with 75-80% of transactions at some chains on that side. But Starbucks is refining that model. "What we&#39;ve discovered is, and this is actually a really nice piece of the business, is the younger customer is definitely attracted to the whole tea proposition that we have, the matcha latte solution," as with new Unsweetened Matcha and viral Dubai Matcha, Niccol reported. That said, "it does appear that if we bring smart flavors with tea, refreshers, cold beverages, that&#39;s inclusive of even iced coffee or cold brew, we continue to see progress with the younger customers." Bottom line: "it&#39;s a much more balanced approach . . . as opposed to a, you know what? We&#39;re just focused on young and cold drinks. That&#39;s not what we want to be about. We want to be about being a solution, frankly, for all those that want that third-place experience with a customized handcrafted drink."Leadership Changes Include 2 Taco Bell Hires The Chipotle alum Niccol also is shaking up leadership team, prompting exit of some vets and onboarding of newcomers including at least a couple from Taco Bell. With so much work to be done at store level, he's set new role of chief stores officer that's being filled by the 30-yr Taco Bell vet Mike Grams. Move incorporates some responsibilities held by Sara Trilling, who by Niccol's account agreed with shift but figured it wasn't a good fit for her own career. So she'll be moving on. Also new is chief store development officer role that's being filled by Meredith Sandland, another Taco Bell vet who most recently ran restaurant optimization software outfit called Empower Delivery. Soon to be announced will be another new role, evp/chief supply chain officer as co integrates customer solutions team with the stores team. With this change in scope, Valdez, an Amazon and Target alum, "decided it was time to hand things over to a supply chain new leader," as Niccol described it. He'd only joined SBUX in 2023, recruited by Narasimhan during his short run as CEO before board concluded the ex-Pepsi exec was a bad hire for challenging role. Earlier this month, longtime board member Mellody Hobson said she wouldn't stand for re-election and Starbucks China chair Belinda Wong retired after 25 years with co.There will be changes at more fundamental level at Seattle hq, with Niccol having warned over past week that this likely will involve layoffs. "We&#39;re also working to change the role, structure and size of our support teams to improve efficiency and accountability," as he said yesterday afternoon in his opening remarks. (We got an assist from Motley Fool transcript in writing this story.)

Starbucks Shakes Up Leadership, Will Slash In-Store SKUs by 30% This Year, as New CEO Niccol Rebuilds Biz; Flat Sales in Q1

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