Here's Why Brian Niccol's "Back to Starbucks" Plan Is Going Better Than It Seems

Starbucks' (NASDAQ: SBUX) new CEO Brian Niccol has been rapidly implementing changes within the iconic coffee brand, aiming to get "Back to Starbucks." In short, Niccol believes the key to returning to growth is getting back to what set Starbucks apart in the first place.

Just to name a few examples: Niccol brought back the condiment bars that went away at the start of the COVID-19 pandemic, as well as the writing on cups that created a more personal feel to customers' favorite beverages. Starbucks has also stopped charging extra for nondairy milk substitutions and has started to simplify its menu. And most recently, Starbucks now requires purchases to utilize its tables and restrooms in its cafés.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

In the company's latest earnings report, Starbucks reported a 4% year-over-year decline in same-store sales, but Niccol isn't worried. Here's a rundown of the key points from the latest quarter, and what investors should watch going forward.

Starbucks' latest results

Starbucks reported its latest earnings recently (from its fiscal first quarter), and although same-store sales declined and customer traffic declined by 6% year over year, this was better than analysts expected. In fact, the consensus estimate was for a 5.5% sales drop.

Plus, while the year-over-year results look rough, if we look at the quarter-over-quarter results, it tells a different story. In fact, revenue actually increased by about 3% compared with the previous quarter.

Here are a few key stats from the business, and how they compare with the prior quarter:

Data source: Starbucks earnings reports. Starbucks' fiscal year ends in September.

In a nutshell, if we look at the year-over-year results, it doesn't look like things are going so well for Starbucks. But if we look at how things looked in the previous quarter, we can see that the company's metrics are certainly moving in the right direction.

There are a few other items that look concerning on the surface, but aren't as bad as they seem. For example, Starbucks' operating margin declined by nearly four percentage points year over year, but this was mainly due to investments in the "Back to Starbucks" plan that should pay off over the long run. Also, Starbucks Rewards loyalty program membership was flat sequentially in the prior quarter, but increased 2% in the first quarter of the 2025 fiscal year.

There's a lot that isn't reflected in the numbers yet

It's important not to read too much into the year-over-year numbers that were just released. Not only are the sequential results far better (as mentioned), but there's a lot that isn't reflected in the results just yet.

For one thing, many of the company's initiatives, such as the menu simplification and the requirement to make a purchase to use the cafés, didn't happen until after the quarter ended. And the most money-saving parts of Niccol's plan are just starting to roll out, such as reducing the corporate head count (planned for March).

The bottom line is that turnarounds take time. But Niccol and his team have been hard at work, and if the metrics can continue to move in the right direction each quarter in 2025, there could be lots of upside for patient investors.

Should you invest $1,000 in Starbucks right now?

Before you buy stock in Starbucks, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Starbucks wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $763,921!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of January 27, 2025

Matt Frankel has positions in Starbucks. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.