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Starbucks (NASDAQ:SBUX) just dropped earnings that show a company in transition. EPS slid 23% to $0.69, but it still edged past Wall Street's estimates. Revenue held steady at $9.4 billion, yet same-store sales dipped 4% for the fourth straight quarter, hit by a 6% drop in customer traffic. Despite the sluggish numbers, investors cheered CEO Brian Niccol's turnaround push, sending shares up over 8% in early afternoon. Niccol is betting big on a Back to Starbucks strategyslashing menu complexity, improving service speed, and refocusing the brand on coffee. But the real question is whether these changes will be enough to reignite sustainable growth.
Niccol isn't wasting time. Starbucks is revamping stores, trimming excessive promotions, and rolling out tech upgrades like faster blenders and milk dispensers to boost efficiency. In the U.S., foot traffic from casual customers is picking up, and international marketsdespite a 6% drop in Chinastill hold long-term potential. But Starbucks is also getting leaner. The company is tightening corporate structure, planning layoffs, and scaling back aggressive expansion to free up capital for its comeback. Niccol believes the U.S. market alone could still support double the current store countjust not at the previous breakneck pace.
Wall Street remains cautiously optimistic, but investors aren't giving Starbucks a free pass. Analysts see limited near-term upside given the stock's valuation, and last year's union tensions are still a wildcard. The turnaround will take time, and the company's ability to balance growth with profitability is under the microscope. Starbucks is making bold movesbut the real test will be whether these changes translate into consistent sales gains. Investors will be watching closely as Niccol tries to steer Starbucks back to its former dominance.
This article first appeared on GuruFocus.