By Sabrina Escobar

Starbucks investors, brace for changes ahead as the company's new CEO, Brian Niccol, prepares to take multiple steps to improve the company.

"It is clear we need to fundamentally change our strategy to win back customers," Niccol said Wednesday as the company released final results for its fiscal fourth quarter.

Niccol will provide more updates regarding his strategies at an earnings call scheduled for 5 p.m. Eastern time.

Starbucks posted a disappointing quarter -- but investors already knew that, as the company unexpectedly released its preliminary results last week.

The final results matched the provisional figures.

Starbucks reported an adjusted profit of 80 cents a share, well below earlier forecasts for $1.03, according to FactSet. Sales of $9.1 billion missed estimates for $9.38 billion, and same-store sales fell 7% in the quarter, driven by declining demand in North America and China, the company's two largest markets.

Starbucks suspended guidance as it begins to chart a new course under Niccol. It also raised its dividend by 7%, hoping the increase demonstrates the board's "confidence in the long-term growth."

Starbucks shares ticked up 0.5% to $97.85 in after-hour trading.

The stock gained about 0.9% in the week through Wednesday's close since the earnings preannouncement, outperforming a decline of 0.7% in the S&P 500. Starbucks' move suggests investors are optimistic about Niccol's ability to turn the business around.

"We view the pre-announcement as a healthy reset of expectations and believe the bar is low for SBUX to improve its customer experience, value proposition, and store efficiency," wrote Arun Sundaram, an analyst at CFRA Research, ahead of Wednesday's final report.

Starbucks has been grappling with several quarters of soft demand in the U.S. and China, two of the company's biggest markets. Full-year global same-store sales dropped 2% compared with 2023, the company said, driven by a 4% decline in comparable transactions. Profitability took a hit as well -- Starbucks' yearly operating income fell 8% year over year to $5.4 billion .

The declines are driven by a combination of macroeconomic and company-specific factors.

From a macro perspective, consumers have been dining out less as they navigate persistent inflation, and in the case of China, a sluggish economic recovery.

The company has also made a few operational missteps that have alienated consumers, especially in the U.S., analysts -- and former executives -- have said. These include prioritizing the mobile order experience over the in-store customer experience, hiking prices too quickly, and straying away from the brand's coffee-focused DNA.

"While people love Starbucks, some feel like we have drifted from our core, we've made it harder to be a customer than it should be," Niccol said.

In a video that accompanied the preliminary results, Niccol outlined a few things the company hopes to improve on, such as simplifying the coffee shop's menu, changing its marketing strategy, refining mobile order, reformatting stores, and shifting the focus back to coffee.

On Wednesday, he provided a few examples of how Starbucks is addressing those issues. Making Starbucks cafes cozy again is another key component of Niccol's plan. The company will add more personal touches to stores, such as serving dine-in orders in ceramic mugs, bringing back more comfortable seating options, and reinstalling in-store condiment bars.

Given the store redesign, Starbucks plans to reduce the number of its new stores and renovations in fiscal year 2025. The slower pace will unlock capital for other turnaround efforts, executives said.

The company hopes to make things easier for baristas and improve product consistency. For instance, Starbucks will finish rolling out its new more efficient, brewing machines by the end of fiscal 2025, and trim its menu and limit customization options by placing "common-sense guardrails" on mobile ordering that will improve throughput during peak hours, Niccol said.

In paring down the menu, Niccol also hopes to streamline product pricing, which can vary depending on customization and can lead to sticker shock when customers check out. As part of that effort, Starbucks will eliminate upcharges for nondairy milks at North American cafes, and intends to avoid raising menu prices through fiscal 2025.

"We will still offer customers great choice, but will be focused on fewer, better offerings, consistently crafted," Niccol said.

These efforts will take time, however -- something executives acknowledged. The back half of the fiscal year will be stronger than the first as the investments and strategies start to take hold, management said.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 30, 2024 18:18 ET (22:18 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.