Starbucks wins dismissal of shareholder fraud lawsuit in U.S. and China

Investing.com -- A federal judge dismissed a lawsuit that accused Starbucks Corp of defrauding shareholders by hiding declining sales in the United States and China, its two largest markets.

U.S. District Judge John Chun in Seattle ruled on Wednesday that Starbucks provided an innocent explanation for statements made by former Chief Executive Laxman Narasimhan during a January 2024 analyst call. The judge found that Narasimhan's belief that he was discussing sales trends from the completed quarter was at least as believable as shareholders' claim that he was referring to current sales trends.

Judge Chun had previously allowed the case to move forward in November.

The lawsuit was brought by shareholders led by three pension plans in New York. Their lawyers did not respond to requests for comment on Thursday.

The legal action came after Starbucks' share price dropped 16% on May 1, 2024, following the company's decision to lower its annual sales forecast. The coffee chain reported that same-store sales fell 4.4% in its latest quarter, with sales declining 3% in the United States and 11% in China.

Brian Niccol, who replaced Narasimhan as chief executive, has implemented a "Back to Starbucks" turnaround plan. The strategy focuses on simplified menus, shorter wait times, upgraded stores, improved in-store technology, and closures of underperforming locations.

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