11:08 AM EDT, 10/23/2024 (MT Newswires) -- Starbucks ( SBUX ) new chief executive Brian Niccol is laying out his turnaround plan for the troubled coffee giant that's facing rising competition, a boycott and flagging sales that posted a worse-than-expected drop in the just-ended quarter.

Investments that Starbucks ( SBUX ) made in a bid to drive US sales including more promotions in its app didn't bring in customers as planned, the company said late Tuesday in its preliminary fiscal fourth-quarter report. Comparable sales dropped 6% in the US and 14% in China as competition increased and a "soft macro environment" weighed on consumers.

Total comparable sales fell 7%, missing consensus compiled by Capital IQ for a 6.5% drop.

"Our fourth quarter performance makes it clear that we need to fundamentally change our strategy so we can get back to growth and that's exactly what we are doing with our 'Back to Starbucks' ( SBUX ) plan," said Niccol, who joined the company in early September after leaving the same role at Chipotle Mexican Grill (CMG).

Niccol replaced Laxman Narasimhan, who held the job for less than 18 months.

The Back to Starbucks ( SBUX ) plan was outlined by Niccol last month in a bid to bolster US sales with a sharper focus on customer service and technology investing. Niccol said he would give more details on the company's earnings call next Wednesday.

"We expect CEO Niccol will construct a comprehensive plan to better address recent challenges and lackluster performance by improving the customer experience across multiple initiatives," UBS analysts including Dennis Geiger said in a note Wednesday. "We expect US sales trends could improve in (fiscal first quarter), in part given easier comparisons and the lapping of boycotts in the US."

Some consumers have boycotted Starbucks ( SBUX ) over perceived support for Israel in its war with Hamas in Gaza, though the company said in December that it "has never contributed to any government or military operation in any way."

Starbucks ( SBUX ) has also faced criticism for how it has dealt with attempts by workers to unionize. In February, the company and labor group Workers United said they would begin talks on a "foundational framework."

Earnings in the fiscal fourth quarter dropped 24% year-on-year to $0.80 a share on a non-GAAP basis, Starbucks ( SBUX ) said Tuesday in its preliminary results. The consensus on Capital IQ is for $0.88. Revenue fell 3% to $9.1 billion, while the Street currently expects $9.07 billion.

Starbucks ( SBUX ) also suspended guidance for fiscal 2025 because of the transition to a new CEO and the "current state of the business," the company said.

"We expect Niccol to expand on his initial observations and priorities on next week's call, with a more detailed turnaround strategy likely in early 2025," said Deutsche Bank analyst Lauren Silberman in a note. "We expect bulls to largely look past near-term noise and focus on SBUX's long-term earnings power, though this quarter is unlikely to mitigate bear concerns regarding the timing of a turnaround."

Shares in Starbucks ( SBUX ) slipped on Wednesday, hitting the lowest intraday since Sept. 11 before recouping the declines to trade slightly weaker. The latte maker raised its quarterly dividend to $0.61 a share from $0.57 to show "the company's confidence in the long-term growth," it said late Tuesday.

"We believe upside potential exists for shares as incremental details on plans are provided and gain traction, but we're looking for better visibility into plans before getting more constructive," said UBS analyst Geiger, who has a neutral rating on the shares.

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