Shares in coffee giant Starbucks (SBUX) were lower today as it unveiled a $1 billion restructuring plan including hundreds of job cuts and store closures.
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Starbucks said it would shut about 1% of its locations, mainly in North America. The company had 18,734 North American locations at the end of June, and the company said it will end September with 18,300 stores.
Physical Environment
“During the review, we identified coffeehouses where we’re unable to create the physical environment our customers and partners expect, or where we don’t see a path to financial performance, and these locations will be closed,” chief executive Brian Niccol said in a letter to employees.
Despite the hundreds of closures, which will take place before the end of the company’s fiscal year next week, Starbucks said it will return to growth mode. It also plans to remodel more than 1,000 locations with cozier chairs, more power outlets and warmer colors.
In addition to the store closures, Starbucks announced 900 corporate layoffs. Starbucks said the job cuts would be in its support teams and added the company would also close many open positions.
The company employed about 10,000 people in non-coffee house roles in the U.S, as of September 29, 2024.
“This is a more significant action that we understand will impact partners and customers,” Niccol said.
Turnaround Strategy
Starbucks sales and earnings have suffered in recent months – see below – as a result of more intense competition, consumers looking for cheaper options in a time of economic uncertainty and uninspiring food options. In Q2 North American sales fell 2%, with global sales down by the same amount. EPS was $0.50, down 45% from the prior year.
Niccol joined Starbucks about a year ago, hoping to revive the famous coffee chain. However, sales have continued to struggle and the share price is down 12% over the last 6 months.
A key part of Niccol’s strategy has been to revive sales by restoring a traditional coffeehouse atmosphere into its outlets by reducing wait times.
He has also brought in new products such as protein toppings and coconut water with new croissants and baked goods. He has also restored self-serve milk, sugar stations and coffee cup doodles.
However, some moves such as uniform changes have been less well received by staff.
Is SBUX a Good Stock to Buy Now?
On TipRanks, SBUX has a Moderate Buy consensus based on 14 Buy, 6 Hold and 2 Sell ratings. Its highest price target is $115. SBUX stock’s consensus price target is $102.10, implying a 22.68% upside.
