Starbucks leans on stores, customer experiences and marketing in bid to revive sales amid ongoing slump

Coffee chain Starbucks reported weaker-than-expected quarterly earnings and a continued decline in same-store sales, highlighting the challenges facing the company as it seeks to reinvigorate its core business.

The Seattle-based company posted second-quarter net income of $384.2 million, down sharply from $772.4 million, a year earlier. Operating margins also declined significantly, dropping to 6.9 percent from 12.8 percent, a slide executives attributed to rising labor costs and a shift away from automation.

Despite the disappointing results, Chief Executive Brian Niccol insisted that early signs of progress are emerging from the company’s “Back to Starbucks” turnaround plan. “Our financial results don’t yet reflect our progress, but we have real momentum,” Niccol said in a video posted on Starbucks’ website. “We’re testing and learning at speed and we’re seeing changes in our coffeehouses.”

Under Niccol, who assumed the CEO role last September, Starbucks has sought to sharpen its focus on coffee and the customer experience, pulling back from automation initiatives that had, in some cases, led to slower service and customer dissatisfaction.

The numbers, however, suggest the turnaround has yet to gain traction with consumers. Global same-store sales declined 1 percent in the quarter, marking the fifth consecutive period of negative growth. Transactions slipped 2 percent. In the United States, which remains Starbucks’ largest market, transaction volume fell 4 percent, leading to a 2 percent drop in same-store sales. In China, the company’s second-largest market, sales were flat, as an increase in foot traffic was offset by lower average spending.

Speaking on the company’s earnings call, Niccol acknowledged the missteps of previous strategies. “At this stage in our turnaround, (earnings per share) shouldn’t be used as a measure of our success,” he said, emphasizing recent staffing increases and operational shifts intended to improve service.

Among the changes, Starbucks has paused the rollout of several pieces of automated equipment, including its Cold Pressed Cold Brew system and new heating devices for food items, redirecting investment toward in-store labor. “We believe this evolved, labor-focused approach has more potential to improve throughput and connection while minimizing future capital expenditures on equipment,” Niccol said.

To counter flagging traffic, the company has ramped up promotional efforts and begun restructuring parts of its corporate operations. In February, Starbucks said it would cut approximately 1,100 corporate positions in an effort to streamline decision-making and reduce costs.

External factors have added further complexity. The company cited trade tensions and tariff policies, as risks to its cost structure. Roughly 10 to 15 percent of Starbucks’ product and distribution costs are tied to green coffee, said Cathy Smith, the company’s chief financial officer. “We expect that the balance of this fiscal year will bring some challenges as we navigate a dynamic macroeconomic environment, including tariffs and volatile coffee prices,” the company noted in a regulatory filing.

Still, Niccol expressed confidence in the direction of the turnaround. He pointed to improved service speeds and positive responses to recent marketing campaigns. Starbucks is also investing in store enhancements, including upgraded seating and more premium finishes, to encourage customers to linger.

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