Starbucks faces a lawsuit claiming it misled shareholders about declining sales in its two largest markets, the U.S. and China. U.S. District Judge John Chun in Seattle ruled that shareholders can attempt to prove Starbucks intentionally concealed weaknesses during a January 2024 analyst call, where the company highlighted successes in its “reinvention plan.” Chun highlighted that the chain could also be sued for statements in a regulatory filing claiming there were “no material changes” to business risks, including whether the reinvention plan would succeed.
The unexpected sales drop led to a 16% decline in Starbucks’ share price on May 1, 2024, erasing roughly $16 billion in market value. A Starbucks spokesperson said the company “intends to continue defending against the allegations.”
The lawsuit allows shareholders to pursue claims against former CEO Laxman Narasimhan, although several other claims were dismissed. The controversy followed Starbucks' lowering its annual sales forecast and reporting a 4.4% same-store sales decline, with 3% in the U.S. and 11% in China, citing consumer pressure, adverse weather, and operational challenges.
Current CEO Brian Niccol, who assumed the role in August 2024, has implemented a “Back to Starbucks” turnaround strategy focusing on faster order fulfillment, simplified menus, upgraded stores, and closing underperforming locations. Niccol said that same-store sales rose 1% in the latest quarter, signaling early signs of recovery.
