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Shareholders say Starbucks concealed deterioration

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Starbucks stock fell 16% in May 2024 on unexpected

weakness

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Starbucks intends to continue defending itself

By Jonathan Stempel

Nov 20 (Reuters) - Starbucks must face a

lawsuit claiming it defrauded shareholders by concealing

declining sales in the United States and China, its largest

markets, leading to a 16% drop in its stock price after the

coffee chain revealed the unexpected weakness.

In a decision late on Wednesday, U.S. District Judge John

Chun in Seattle said shareholders can try to prove Starbucks

intentionally misled them in a January 2024 analyst call by

touting successes in its "reinvention plan."

These included statements that upgrades in equipment,

staffing and scheduling would create a "better experience" for

employees, and lead to increased customer spending and loyalty.

Chun said Starbucks could also be sued for saying in a

January 2024 regulatory filing there were "no material changes"

to risks affecting its business, including as to whether the

reinvention plan would succeed.

Shareholders can also pursue some claims against former

Starbucks CEO Laxman Narasimhan. Chun dismissed several other

claims.

A Starbucks spokesperson said on Thursday the Seattle-based

company intends to continue defending against the allegations.

Lawyers for the shareholders, who are led by three pension plans

in New York, did not immediately respond to requests for

comment.

Starbucks disappointed investors on April 30, 2024, when it

lowered its annual sales forecast and said same-store sales fell

4.4% in its latest quarter, including declines of 3% in the

United States and 11% in China.

Analysts expected same-store sales to rise. Starbucks said

results were hurt by economic pressure on consumers, bad U.S.

weather, competition in China, and many customers cancelling app

orders because wait times were too long and menu items were

unavailable.

The 16% decline in Starbucks' ( SBUX ) share price on May 1,

2024, wiped out about $16 billion of market value.

Brian Niccol, who became CEO in August 2024, has pursued a "Back

to Starbucks" turnaround plan that has focused on filling orders

faster, simplifying menus, upgrading stores, and closing poorly

performing stores. Same-store sales rose 1% in the latest

quarter.

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