Starbucks pre-released quarterly results and suspended guidance for fiscal year 2025. As Max readers may recall from last week’s portfolio earnings preview, this is what I said about Starbucks heading into the season:

“This is the very first quarter for new Starbucks CEO Brian Niccol. There is no scenario where his leadership impacts this quarter’s (and next quarter’s) results. He took over with 3 weeks left in the period. I don’t think the results are going to be good and I don’t think anyone is going to care. It’s all about what this highly regarded CEO can do going forward. It’s very possible that, like Nike, this stock and multiple got too excited by the news and it cools off following the report. I’m actually hoping for that; I did not get to build out as large of a position as I wanted to before Niccol took over and the multiple snapped back higher. I’m rooting for Niccol to make this the kitchen sink quarter and bake in all of the bad news to lower the bar for his future success. I want these results to disappoint.”

Starbucks section of my article from last week’s Max article

And? The data in this release was certainly bad as expected:

Per the release, results reflect a “challenged customer experience.” Niccol is forming a “Back to Starbucks” plan, but more time is needed to finalize the strategy. More details will come on the Q4 call. Leadership bluntly blamed weakness on the old team’s approach “not improving customer behaviors” or traffic. Ironically, these initiatives included menu expansion, more promotions and focusing marketing on rewards members. Now? Starbucks will do the opposite. Fixing menu clutter, reducing promotional activity and broadening marketing to all consumers is part of the new path forward.

Still, some priorities will remain the same. For example, enhancing throughput will rightfully stay as a focus point. Hopefully they’ll actually start to fix this bottleneck. Time-to-service remains awful and it’s “too hard to be a customer,” per Niccol. Staffing practices and allocation of labor need to change here. Fixing the mobile ordering process so it doesn’t ruin in-store service must happen too. I’m optimistic, as Niccol was a throughput king with Chipotle.

Beyond this tangible problem, Niccol thinks the coffee giant has “drifted from its core.” They need to get back to making a consistently quality cup of coffee (stop burning it); they need to leverage the power of their world-class supply chain to more effectively market the brand. They also need to make their stores look warmer and more inviting to rediscover that community coffee house reputation. These problems, to him, are “all fixable” and the brand is still “strong and enduring.” While he needs more time to finalize the approach going forward, early learnings are being used to implement minor changes to ”stabilize the business.”

There was every incentive imaginable for Niccol to make this the kitchen sink quarter. There was also every reason to eliminate guidance and give himself the time and street patience needed to form a plan and thoughtfully execute. This remains an iconic, global brand with plenty of growth left in the tank. It also offers low hanging capacity utilization and throughput issues to straightforwardly fix, like Brian Niccol has done before. Macro and competitive pressures in China are also amplifying all of this weakness. That needs to be said. At the same time, execution is the biggest thing holding this legendary American company back. Again, Niccol has already shown the world how well he can do with unleashing Chipotle’s and Taco Bell’s potential success.

I am cheering for this decision to pre-announce results and take all of the pressure off near term financial targets. Do this turnaround the right way. We’ll have to see how the stock price reacts, as I think many investors were expecting the same thing that I was. If this is the event needed to get the stock to cool off, I’d love to resume building out this newer stake. I’m eyeing the mid-$80s.