(Bloomberg) -- Starbucks Corp.’s new Chief Executive Officer Brian Niccol is facing a key test: convincing investors he’s worth the $21 billion in market value the coffee chain notched after his appointment.
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On Wednesday, during his first earnings call since taking the helm, Niccol needs to present a path out of the deepening sales slump that prompted the company last week to release preliminary earnings and yank guidance for the current fiscal year.
Niccol said the company needs to “fundamentally change” its strategy after promotions and product launches implemented by prior leadership didn’t work, sparking the chain’s third straight same-store sales decline. He’s expected to reveal more concrete details on Wednesday.
“He just has to get people to believe what he’s saying,” said Eric Gonzalez, an analyst at KeyBanc Capital Markets. “I think he’s got all the benefit of the doubt right now.”
The company’s shares surged 25% when Starbucks announced his hiring on Aug. 13. Even so, the stock was up only 1.4% this year through Tuesday’s close, compared to a 23% rise for the S&P 500 Index.
Niccol, who engineered turnarounds at Taco Bell and Chipotle Mexican Grill Inc., has acted quickly since taking the helm on Sept. 9, starting with remaking the company’s top ranks. He hired a new global chief brand officer to “reintroduce” the brand to customers.
The CEO wants to refocus the company around Starbucks’ signature offering: coffee. Niccol said he wants to give baristas the time and tools they need and refine mobile ordering so it doesn’t overwhelm stores. He also vowed to simplify an “overly complex menu.” The chain is planning to pull its Oleato suite of olive oil drinks, in line with that strategy, Bloomberg News reported Tuesday.
“I believe that our problems are very fixable,” Niccol said in a video posted to the Starbucks website on Oct. 22.
Any action on prices, which have become a point of contention for inflation-battered customers, will be in focus for investors. Niccol is also reviewing staffing, with only one-third of Starbucks store workers in the US saying it is sufficient.
Some investors are skeptical of Starbucks’ prospects, even with Niccol in charge. Dan Ahrens, portfolio manager of the AdvisorShares Restaurant ETF, said the fund removed the company from its holdings.
Among other topics, Ahrens wants to hear more about what Niccol’s plans mean for profits and how he’ll stoke growth in China, where the business has struggled given the country’s slow economic recovery and increasingly fierce local competition.
“Investors have heard a lot of mixed messages over the past couple years from Starbucks,” Ahrens said via email.
For KeyBanc’s Gonzalez, Niccol needs to answer the even bigger question of whether Starbucks is a growth company or a mature enterprise that will expand at modest rates.
“I just don’t know the answer to that question,” Gonzalez said. “That’s what I want to know before I can recommend a stock.”
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