Starbucks sees annual profit above estimates as turnaround gains traction

By Neil J Kanatt and Waylon Cunningham

Oct ‌29 (Reuters) - Starbucks forecast ​annual profit ​above Wall Street expectations on Thursday and unveiled a $1 billion share repurchase plan, signaling confidence that Chief Executive Brian Niccol's sweeping overhaul of the coffee chain is beginning to gain traction.

Shares of the ‌company, however, fell about 2% in extended trading after its divestiture of its Chinese business prompted ⁠it to forecast an annual revenue decline.

Niccol repeatedly told investors on the earnings call that his "Back to Starbucks" strategy was no longer a turnaround ‌effort, but a growth plan after ‌two years of menu simplification, staffing investments and operational improvements aimed at reducing wait times and improving service.

Investors have increasingly focused on whether those efforts can restore profitability. Starbucks has sought to improve margins through restructuring efforts, ​including layoffs and store closures, to offset nearly $500 million in labor investments tied to the overhaul.

The Seattle-based company forecast fiscal 2027 adjusted earnings per share of $3.15 to $3.25, compared with analysts' expectations of $3.14, according to data compiled by LSEG.

Niccol ⁠said the coming year will have a focus on tech and modernization, listing as examples an AI system to assist baristas in taking drive-through orders, as ​well as systems that could “recognize participating customers as they arrive, present personalized digital menus and make payment more effortless.”

He said progress had been made in his efforts to transform Starbucks’ ​supply chain – whose tangles have caused product shortages over the years, ‌Reuters reported in February. Niccol also said the company is testing new ways to forecast demand for products and added that daily deliveries are reaching close to 90% of North ⁠American stores.

The world's largest coffee chain reported fourth-quarter global same-store sales growth of 7.2%, topping analysts' expectations of a 5.4% increase. Adjusted earnings per share came in at 80 cents, ahead of estimates of 72 cents.

Michael Gunther, an analyst at Consumer Edge, said the ⁠sales growth was encouraging and reflected demand for affordable indulgences, but warned Starbucks was continuing to lose younger consumers to fast-growing rivals such ​as 7 Brew.

Starbucks forecast fiscal 2027 revenue would decline about 1%, compared with analysts' expectations for a 1.4% increase, reflecting the transfer of its Chinese retail operations into a newly formed joint venture with Boyu Capital after selling control in a deal valuing the ‌business at $4 billion.

"The guidance was weak, but perhaps they're trying to set low expectations," said Brian Jacobsen, an analyst at Annex Wealth Management, adding that he believes the company has ‌momentum.

The company, which is weighing the sale of a majority stake in its Japanese business in a potential deal that could ⁠value the coffee chain's biggest overseas company-operated market ‌at about $3 billion, had quashed talk of ​a deal to acquire Chipotle Mexican Grill following reports of a potential deal.

(Reporting by Neil J Kanatt in Bengaluru and Waylon Cunningham in New York; Editing by Pooja Desai, Maju Samuel and ‌Aurora Ellis)

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