Investing.com - Starbucks (NASDAQ:SBUX) gained 8% in afternoon trading Wednesday after the company posted a shallower-than-expected drop in fiscal first-quarter sales despite declines in its key North American and Chinese markets, suggesting some momentum in an ongoing drive to revamp and revive the ailing coffeehouse chain.
For the three months ended December 29, Starbucks reported earnings per share of $0.69 on revenue of $9.4 billion. Analysts polled by Investing.com anticipated EPS of $0.68 and sales of $9.35 billion.
Overall same-store sales dipped by 4%, although that was narrower than expectations for a 5.5% decline. U.S. comparable store sales fell 4%, while China slipped by 6%.
Operating margin decreased by 390 basis points year-over-year to 11.9% in the first quarter, pressured in part by investments to support the company's sweeping turnaround plan, including "store partner wages, benefits and hours, and the removal of the extra charge for non-dairy milk customizations," Starbucks said.
CEO Brian Niccol, the former Chipotle (NYSE:CMG) chief who assumed the helm of Starbucks in a surprise move last August, said the business is "moving quickly" to overhaul its operations, adding that there has so far been a "positive response" to the changes.
Niccol had previously outlined a push to adjust Starbucks' pricing strategy and streamline its menu, arguing that its selection of drinks and food had become "overly complex".
In a call with investors, Niccol also noted that Starbucks will work to resolve bottlenecks on its mobile app, flagging that excessive demand through the service is causing baristas to rush out coffees at the expense of a more personalized experience. The firm is trying out an in-store prioritization algorithm designed to sequence mobile orders to improve efficiency, Niccol said.
In a note to clients, analysts at Stifel said they were "encouraged" by Starbucks' update and predicted same-store sales would return to positive territory "as early as [the second quarter of fiscal year 2025]".
"We continue to believe that shifting marketing/promotional spending and changing the in-store prioritization system algorithm is critical to improving transactions," the Stifel analysts wrote.
Elsewhere, BMO Capital analyst Andrew Strelzik raised his price target on the coffee giant to $115, citing "early signs of progress."
"While still early, we come away incrementally positive on SBUX's turnaround given signs of progress, with potential for positive comps as soon as FY2Q25," Strelzik commented.
(Scott Kanowky and Yasin Ebrahim contributed reporting)