Starbucks’ profit slumps as costs mount from turnaround effort

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Starbucks’ profits fell by half in its latest quarter amid mounting costs of the coffeehouse chain’s turnaround effort.

The US-based company on Tuesday reported a 2 per cent year-on-year increase in quarterly revenue to $8.8bn — in line with expectations — but a 50 per cent slide in net income to $384.2mn. Analysts polled by Visible Alpha had predicted quarterly profits of $551mn.

Under chief executive Brian Niccol, who took charge in September, Starbucks has sought to reverse a sales slump that has now persisted for more than a year.

Niccol, a former Taco Bell and Chipotle Mexican Grill executive, has sought to reduce customers’ wait times, simplify menus and restore the welcoming coffeehouse feel that was lost as more business moved online during the Covid-19 pandemic.

He has also cut 1,100 office jobs and replaced senior executives, including the chief financial officer.

Investment to improve cafés is coming at a cost: Starbucks said store operating expenses rose 12.1 per cent to $4.2bn in the quarter.

In a video message on Tuesday, Niccol said the efforts would take time to pay off. He said the company was “where we should be at this point in our turnaround”.

“Our financial results don’t yet reflect our progress, but we have real momentum with our ‘Back to Starbucks’ plan,” he added, using his name for the revival strategy. Shares of Starbucks slipped by 0.6 per cent in after-hours trading.

Starbucks is facing an increasingly difficult challenge as consumers signal caution in the face of US President Donald Trump’s trade wars.

Global comparable store sales for the Seattle-based company fell 1 per cent in the second quarter that ended in March, marking a fifth straight quarter of declines. US stores reported 4 per cent fewer transactions year on year.

Trump’s baseline tariffs of 10 per cent on most trading partners, which took effect in April, will increase the cost of coffee beans Starbucks imports to the US from nations including Brazil and Colombia. 

Starbucks has said wholesale coffee prices — currently trading at record highs of more than $4 a pound — account for 10 per cent to 15 per cent of its product and distribution costs.