Starbucks Cto Resigned Monday Amid Tech Revamp

By Evie Liu and Nate Wolf

Starbucks is closing hundreds of coffee shops and laying off 900 employees as part of a $1 billion restructuring effort. The move comes as the coffee chain's management attempts to turn around the business.

Investors, however, might need more patience.

The company didn't provide details on how many stores would close, instead saying it will finish its fiscal year, which ends Sunday, with fewer than 18,300 locations in the U.S. and Canada. Starbucks had 18,734 locations as of June 29.

"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," CEO Brian Niccol wrote in an open letter.

The Seattle-based company will notify staff at impacted shops this week and will attempt to offer transfers to nearby locations where possible, the chief executive added.

Starbucks will also eliminate around 900 corporate jobs to shave expenses and invest more in staffing and redesigns at coffee shops. Workers will find out their status on Friday morning, Niccol said, requesting that employees work from home the next two days.

Store-closure costs and other restructuring expenses, including severance packages, will total around $1 billion, Starbucks reported in a regulatory filing.

"These steps are to reinforce what we see is working and prioritize our resources against them," Niccol wrote. "Early results from coffeehouse uplifts show customers visiting more often, staying longer, and sharing positive feedback."

Starbucks stock slipped 0.8% in Thursday trading. Shares have fallen 8.4% this year.

Niccol, the former Chipotle Mexican Grill CEO, is embarking on the second year of his turnaround plan. The executive has focused on improving customers' in-store experience and revamping the menu, but sales and profit margins still showed weakness last quarter.

For the three months ended in June, the company reported a 4% revenue growth that beat analyst expectations. Much of the growth was driven by its expanded footprint; comparable sales at existing stores actually dipped 2%, more than the 1.3% decline analysts had projected.

Profits were also squeezed as the coffee chain made investments in its stores and menu. In the latest quarter, adjusted earnings per share were nearly half the level compared with a year ago and below analyst expectations.

Starbucks recently rolled out new items such as protein cold foam, coconut water-based tea, and energy drinks to try to lure customers back into stores. It's also experimenting with gluten-free and protein-heavy food, following customer feedback for more healthy options.

Don't expect earnings to improve soon. Management is planning more new menu items in 2026. Rising costs of coffee beans due to unfavorable weather in West Africa, plus the U.S.'s 50% tariff on beans imported from Brazil, could further drive up input costs.

Starbucks has been remodeling some locations and adding comfortable seating to make them more inviting. Management also increased store staffing, further adding labor costs. The company has said it won't raise prices in 2025.

To create a more welcoming environment, Niccol has brought back the tradition of handwritten customer names on coffee cups, often with a personal note as well. That has brought some problems as well.

Earlier this month, a barista was fired for writing an inappropriate message on a cup after a customer ordered the favorite Starbucks drink of Charlie Kirk, the political activist who was recently killed. Another barista was captured in a video refusing to write "Charlie Kirk" on the cup as requested by a customer.

Starbucks said it aims to respect customers' preferences if they want to use a different name other than their own, including Charlie Kirk, but that its policies prohibit political slogans or negative messages in the handwritten notes. Starbucks Workers United, which represents baristas at more than 600 cafes, has demanded the company end mandatory writing on cups.

Things aren't looking bright overseas, either. In China, local chains like Luckin Coffee have been crimping Starbucks' sales in its second-largest market. Same-store sales fell 8% in the fiscal second quarter from a year ago, and Starbucks recently lowered prices on non-coffee beverages.

During the company's last earnings call, Niccol said Starbucks is looking for a strategic partner to take a stake in its China business and has received significant interest from more than 20 parties. Still, he noted that Starbucks is committed to its China business and wants "to retain a meaningful stake."

Whether Starbucks stock could bounce back remains to be seen. Niccol said at the last earnings call that the company has "fixed a lot" and is "gaining momentum." Investors will be looking for traction — as they have been since 2022 — at the next earnings report in October.

Write to Evie Liu at evie.liu@barrons.com and Nate Wolf at nate.wolf@barrons.com

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