Starbucks is now facing a lawsuit from shareholders who say the company hid poor sales in its biggest markets, the U.S. and China. The news came after Starbucks announced a sharp 4.4% drop in same-store sales in its latest quarter, which caused its stock price to fall 16%, wiping out around $16 billion in market value.
A judge in Seattle has allowed the shareholders to proceed with claims that Starbucks misled investors in a January 2024 call. During that call, the company praised its “reinvention plan,” which promised better equipment, more staff, and improved scheduling to create a better experience and boost sales. The lawsuit argues that these claims downplayed real problems.
The judge also said shareholders can challenge Starbucks for saying there were “no material changes” in risks to the business in a regulatory filing, despite uncertainties about whether the reinvention plan would work. Some claims are also being made against the former CEO, Laxman Narasimhan, although others were dismissed.
Starbucks blamed the sales drop on tough economic conditions, bad weather in the U.S., fierce competition in China, and problems with long wait times and missing menu items, which led some customers to cancel orders through its app. These issues caught many investors by surprise, as analysts had expected sales to go up.
Since August 2024, Brian Niccol has been CEO and has launched a new “Back to Starbucks” strategy. He has worked on speeding up orders, simplifying menus, upgrading stores, and closing underperforming locations. His efforts have seen a 1% rise in same-store sales in the latest quarter, offering some hope for a turnaround.
Starbucks says it plans to keep fighting the lawsuit. The shareholders behind the case include three pension plans from New York, though their lawyers have not commented yet. This legal battle adds to the challenges Starbucks faces as it tries to recover in a shifting market.