(Reuters) -Starbucks shares rose over 4% before the bell on Wednesday as the coffee chain’s quarterly strong sales beat signaled that CEO Brian Niccol’s turnaround plan was bearing fruit.
A simplified menu and investments in store and labor operations were some of the highlights of Niccol’s ‘Back to Starbucks’ initiative since he took the helm in August.
The major brand reset follows several quarters of falling sales.
“It seems like the company is planning to be on offense next year once its new operating model is in place,” Morgan Stanley analysts said.
Niccol on Tuesday laid out plans to upgrade the aesthetic design of stores, including a lower cost “coffee house of the future” design and pledged more than half a billion dollar in investments in thousands of stores across the U.S. next year.
“The goal has shifted from an initial ‘Back to Starbucks’ to an appropriately ambitious goal for a ‘Better Starbucks,’ where everyone can experience the best of Starbucks,” J.P. Morgan analysts said in a note.
Tariff uncertainty and elevated inflation have hit US consumer sentiment, forcing some businesses to revamp their strategies.
But for Starbucks, the drop in quarterly same-store sales, which refers to sales from stores open for at least 12 months, in its largest North America market was steady at 2%.
Meanwhile in China, same-store sales increased 2% amid stiff competition from local rivals like Luckin Coffee and Cotti Coffee.
Starbucks has been exploring options such as strategic partnerships and joint ventures for its China business, which was valued at up to $10 billion, according to media reports earlier this month.
Following the results, at least five brokerages raised price targets on the stock, while the company trades at a 12-month forward price-to-earnings ratio of 33.28.
(Reporting by Siddarth S and Akriti Shah in Bengaluru; Editing by Harikrishnan Nair)
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