'Fired Up' Schultz Gives Peek at Starbucks Turnaround Plan

100 Stores to Close, No More Breakfast as CEO Puts Emphasis on Long Term

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CHICAGO (AdAge.com) -- Howard Schultz wants to make one thing clear: Starbucks isn't responding to McDonald's.

The dynamic coffee CEO opened an earnings call with investors today by addressing recent media coverage that has suggested the coffee chain is vulnerable to the Golden Arches. "That's not the issue," he said, noting that Starbucks has to improve the store experience for its own sake. Mr. Schultz also took pains to respond to reports that the coffee maker is testing an 8-ounce coffee for the McDonald's-style bargain price of $1. "This is just a test," he emphasized.

Yet the remarks weren't defensive, said William Blair analyst Sharon Zackfia. "That's just Howard being Howard," he said. "If anything, he sounded fired up."

The chain reported fiscal first-quarter net income rose 1.5% to $208 million, or 28 cents per share, compared with net income of $205 million, or 26 cents per share, in the year-earlier quarter that ended Dec. 31. Same-store sales were up 1%.

Mr. Shultz went on to lay out the bare bones of the company's turnaround, deferring many of the details until the company's investor conference on March 19.

No longer reporting same-store sales
In the near term, Starbucks will stop serving breakfast sandwiches in favor of a healthier alternative to be named later; close 100 underperforming stores; and stop reporting same-store sales -- the standard by which most chains' business is judged. The latter indicates Starbucks is taking a long-term approach to turnaround and doesn't want its progress judged too quickly.

"I understand what they're saying strategically, and I admire the gumption in his statement, that he feels like [same-store sales] are too near term," Ms. Zackfia said. "It will force Wall Street to work a little harder to understand what the underlying business is."

Mr. Schultz reasoned that because the company will be doing an audit on each beverage and each food item on the menu in every store, it will be important to focus on the customer experience in the near term in order to reward the investor in the long term.

Not a surprising move
Darren Tristano, exec VP at Technomic, said the move, while likely to be construed in the market as negative, is hardly surprising given Starbucks' situation. "When companies are doing well, they love to brag about it and when they aren't doing well they sometimes hide behind the veil and say they're going to look at a different metric and that can help to smooth out the peaks and valleys," he said.

Mr. Tristano added that the company's recently launched advertising campaign could begin to have some positive affects on same-store sales soon.
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