Yahoo Finance

Starbucks falling this morning after reporting weaker than expected second quarter results yesterday after the close, as the company says its turnaround plan is still brewing. Let's toss it on over to Yahoo Finance executive editor Brian Sozzi for his conversation with Starbucks CEO Brian Nichols. Soz.

All right, thanks so much, Brad. Brian, always nice to get some time with you after this earnings day. Uh, I'm sure you saw that GDP contracted three tenths of a percent, the first decline since 2022. Through the lens of Starbucks, Brian, does this look like a contracting US economy?

You know, look, that's a great question as it relates to what we're seeing in our Starbucks business, and, uh, you know, if you look at our results, what I'm seeing actually is a step up in transactions as it relates to, uh, our business in the US. We had our best quarter as it relates to sales comp, uh, in the last five quarters. And so, we continue to see progress in the Starbucks business with customers. And that's going to continue to be the case. And that's what is part of a turnaround is, uh, you know, you stabilize the business, and then you build back better with our customers and with our partners in the store. And that, that's where we're, that's where we're under, uh, under, under the game right now, and that's what we're after doing.

Brian, but the North America same-store sales still down 1%. When the Starbucks customer comes into the stores in this economy, are they pulling back? Are they perhaps reaching for a hot coffee instead of a larger iced one? Are they not buying the pastry?

You know, we're not seeing, uh, a change in the basket. Um, so when they come in, the attach has been pretty much the same as far as, uh, customization or adding on food. Um, and, you know, I think frankly what we're focused on is how do we bring customers back into our stores so that they experience a great seat, a great vibe, they get that connection with our baristas, and then they obviously get the craft beverage that they want on the right speed of service. And that's really what we've been making progress on is, and I think at the end of the day, our great craft with our great barista connection and these terrific coffee house experiences are what sets the brand apart, and that's what's going to be the foundational piece that turns this business around.

Brian, why do you think there is that disconnect, you know, just listening to what you're saying trend-wise? Of course, I know you sit on that Walmart board too as well. Just given your vantage point, why do you think there is still that disconnect between what the economy is doing and what you're seeing inside Starbucks?

You know, look, I think consumers obviously are feeling some pressure. There's no doubt that you're seeing, uh, consumer sentiment go down over the last couple of months. Uh, but I do think they're still being very choiceful in where they want to spend their money. And, you know, what I want to make sure is I give them the experience where they feel great about the dollars that they spend at Starbucks. And that's what we're focused on. You know, if we can give people a differentiated experience with great coffee, great drinks, great food, they will continue to come back and they will allocate their hard earned dollars to the Starbucks business. And, you know, that is what we need to deliver on, and that is what we need to make sure the customer is saying to us, which is, you guys are giving me a great experience, you're giving me the great products that I want, and you're doing it on my time schedule. Um, I think, you know, we'll continue to always get more than our fair share of that wallet, and that, that's what we're after.

Brian, you mentioned on the earnings call last night being, quote, disappointed in the quarter. Is the turnaround at Starbucks taking longer than you thought?

You know, look, I never like to have negative sales or earnings that aren't growing. Um, and so we got to be honest with, the reality is, the results weren't great in the quarter. But when you look behind the scenes, there's a lot of great things happening. Okay? We said the Back to Starbucks program was all about getting back to great speed of service or throughput, and great connection in a great coffee house with engaged partners that are set up for success. That's what's happening. If you look at the algorithm test for technology, we've taken about two and a half minutes out of the cafe drink experience. If you look at the drive-through, I think we've pulled out close to 30 seconds of speed in the drive-throughs. Now, pretty much every order is less than four minutes there. We've improved our on-time and accuracy in the mobile order. Uh, and then, we've really got a lot of understanding of what the right staffing levels are, the right deployment so that our baristas are set up for success to do the craft that they love to do, and the connection that they love to provide. Whether it's writing on the cups, saying hello at the handoff, or just knowing their customers' order. So, look, there's a lot of great things happening in the quarter, the results, not where we wanted them to be, but the progress on the Back to Starbucks plan, exactly where we want to be.

Yeah, we're seeing the stock move, Brian. I mean, it's down last time I checked double digits, so under pressure. And, you know, from the folks that I was able to talk with, they were surprised by that North America same-store sales down 1%. I mean, do you have a timeline of when that business is back to growth?

Look, I think the timeline is, when we start delivering great experiences for our customers and set the partners up for success to deliver those experiences, you will see the business grow accordingly. And that's what we're working on. Uh, and I'm confident, you know, that's what's in our future. Uh, I think you're going to see us grow not just the top line, but also the bottom line. And this is what I keep talking about is like earnings is an outcome of us doing the right things in our business both from a culture standpoint, a people standpoint, and a customer standpoint. We do all those things right, we'll get growth on the top line, and obviously we'll do everything we can to make sure that that growth travels to the earnings.

The next two quarters, Brian, should Starbucks be judged more on same-store sales or earnings?

You know, I think we should be judged on the progress that we're making to turn this business around. And, uh, I think you'll see it manifest itself in a lot of different ways. Um, there's more than just a comp metric and an earnings metric. Uh, and I think you're going to see those metrics start to move in the right directions, uh, that will then be the leading indicators to say, look, a lot of good things are on the way for the Starbucks business.

You mentioned that you are reviewing your store base. Of course, you have your new CFO in there, Kathy Smith, who I know from her time at Target. Does a review mean hundreds of store closures?

You know, so what a review means is we got to look at where we have invested money in these stores, have we done it correctly? And, um, you know, obviously it can result in some closures, it can result in some renovation. Uh, and so those are the things that we have to evaluate. As I mentioned on the call, you know, we are looking hard at what are the costs that are necessary to do a great renovation program, what are the costs necessary to do the right new store builds. And so, as we've evaluated what we think that is going forward, we know we got to change versus what we've been doing in the past. And so what I inherited is not a great renovation program or a great new store build program. So we're going to fix it. And that's what the plan is, is to fix just that. And so, uh, we'll do it accordingly. You'll see us do some simple renovations where we can make the coffee house look great again, give people a great seat. Uh, you know, obviously be investing in the labor, we'll be investing in the technology behind the labor. Uh, so I'm really, I'm really excited about the work that's to come on our whole building program going forward.

When I walk into the Starbucks of the future, Brian, what will it look like?

Well, look, what I would hope you experience when you walk into the Starbucks of the future is a great coffee house vibe. It hits you right away. Whether you're coming in to just grab your coffee and go, or if you're coming in to chat up with the barista and sit and stay, I think you want to feel like you're in a special community place. Starbucks has the ability, I think, to make the community space come to life yet again. And I frankly think it's part of the reason why the brand is so important in the world. The world needs these third places. It's where people come together at a local level, support each other, and frankly just have that connection that I think frankly is too lost in too many places. And so that, that's what you're going to feel. Obviously you're going to get great craft, you're going to get great coffee, you're going to get service from baristas that care immensely about the work that they do. And then we're going to give you a great seat for whatever occasion you want to experience in our dining room. And then we'll also set you on your way if you want to come through the drive-through quickly, or you need a mobile order to just be on time for you so you can grab your coffee and go. Um, but that's the Starbucks we're going to be creating in the future. It's going to be one that stands for community, connection, craft. And I think people are going to be really proud to be a part of this brand. And hopefully customers are going to be really excited to be a part of the brand.

Brian, lastly, the Trump administration has made a point in its first hundred days to meet with a lot of manufacturing CEOs. Uh, President Trump has also met with a lot of retail CEOs, I believe Walmart, CEO of Walmart and Target recently, but he hasn't met, I would argue, with service companies like yours. And if he has, not the size of Starbucks. As you look at the past hundred days under the Trump administration, how much more complexity has this administration brought to your life as CEO? I mean, look where you get your coffee beans from. Arabica coffee beans from, what, Brazil and Colombia? Those are now getting tariffed. Uh, wages, prices for other things are going up. Like, what has it been like sitting in that seat of yours?

Look, I think the CEO seat is one of those seats that comes with great responsibility, and the world in which we operate. And Starbucks is a global business, it's a global iconic brand, uh, has got, you know, a lot of complexity, uh, but also tremendous opportunity. And, uh, you know, that's how I always look at these things. I view, uh, the world as a place that's always going to be changing. It's always going to be evolving. And what my job is to figure out how we manage through that change. And, you know, hopefully we're in front of the change, we're in front of culture, and we're keeping our business relevant for all constituents. And so, that's why I love these jobs. Uh, I love being a part of Starbucks at this turnaround phase. I love being a part of a global iconic business because we have the scale, we have the ability to mitigate, pivot, take advantage of opportunities that we see in front of us. And then obviously, course correct where we got to course correct. And, you know, that's the type of leadership team that I've built here. Uh, we've got a lot of agility, uh, we've got a powerful brand. Uh, and, you know, I'm just, I consider myself fortunate to have this job. And look, I, I kind of really enjoy the complexity and the challenges.

Somewhat related, Brian, that lavender coffee that's on the menu. I tried it last weekend on my local mall. You pulled it off. I thought I was going to absolutely hate it, but you got, you guys made it work, so hats off to you guys. Uh, Brian Nichols, Starbucks CEO, always good to see you. Talk to you soon.

Yeah, great seeing you, Brian. I agree with you, the lavender's a sleeper. I'm glad you tried it.

Yeah, that, that's, sleeper, yes, indeed. Maddie, back to you. All right, take care.

All right, thanks to Starbucks CEO Brian Nichols, and of course, to our own Brian Sozzi for the great conversation.