Starbucks reports better-than-expected quarterly sales as turnaround efforts begin

Starbucks on Tuesday reported better-than-expected sales in its fiscal first quarter as some of its turnaround efforts start to deliver results.

The Seattle coffee giant said its revenue was flat at $9.4 billion for the 13-week period ending Dec. 29. That beat Wall Street's forecast of $9.3 billion, according to analysts polled by FactSet.

Chairman and CEO Brian Niccol, who joined the company in September, said customer-focused changes — such as a decision to stop charging extra for non-dairy milk and a streamlining of the menu — were helping to improve service and drive store traffic.

In a conference call with investors Tuesday, Niccol said Starbucks is planning to cut its food and beverage offerings by 30% over the course of this year to simplify operations and speed service. Starbucks will also add digital menus to all of its company-owned U.S. stores over the next 18 months to make ordering options clearer and make it easier to shift its offerings depending on the time of day.

Niccol said the company is also adding staff to some stores and experimenting with ordering algorithms that prioritize in-store customers and better pace mobile orders.

“The place where we run into problems, frankly, is the fact that there is just no gating on the mobile orders,” Niccol said. “All these orders come flooding in faster than even our customer can get there. So all these drinks are sitting on the counter, and it’s at the expense of providing any other experience for a customer that’s right in the store.”

Starbucks is trying to reestablish itself as a gathering place, and this week announced that it will start using ceramic mugs and offering in-store customers free refills of coffee or tea. The company is also trying to appeal to customers with a new rule that requires people to buy something if they want to hang out or use the restroom.

“This is back to the core of what makes Starbucks a unique experience,” Niccol said.

Starbucks' same-store sales — or sales at locations open at least a year — fell 4% compared to the same period last year. The decline was less than the 5.5% analysts anticipated, according to FactSet. It was also better than the previous quarter, when global same-store sales were down 7%.

U.S. same-store sales also fell 4% in the first quarter. Starbucks said transactions were down 8% but customers spent more per visit. Starbucks also pulled back on discounts during the quarter, Niccol said.

Niccol said he recently visited China, Starbucks' second-largest market, where sales have been hampered by lower-cost competitors. China's same-store sales fell 6% in the fiscal first quarter.

Niccol said Starbucks is continuing to explore a strategic partnership that would help it continue to grow in China.

Niccol has also been reshaping Starbucks' corporate staff. Earlier Tuesday, he announced the departure of two senior executives and a reshuffling of their job responsibilities.

Mike Grams, who most recently served as president of Taco Bell, will become Starbucks’ chief stores officer for North America. Meredith Sandland, the CEO of Empower Delivery and the former chief development officer at Taco Bell, will become Starbucks’ chief store development officer. Niccol led Taco Bell until 2018, when he left to run Chipotle.

Niccol also announced earlier this month that Starbucks plans an unspecified number of corporate layoffs by early March.

Starbucks' shares rose less than 1% in after-hours trading Tuesday.