American consumer giants in adversity have adopted the same strategy: abandoning unrealistic old goals, releasing all bad news, and then rebuilding from a low starting point
In adversity, changing leadership and withdrawing performance guidance, the two American consumer giants Starbucks and Nike have adopted the same strategy: release all bad news first to rebuild from a low starting point.
On Tuesday local time, Starbucks released preliminary fourth-quarter results a week early, with profits and sales falling short of expectations, and announced the suspension of full-year 2025 performance guidance to give new CEO Brian Niccol enough time to assess the business and solidify key strategies. This news caused Starbucks' stock price to drop by as much as 7% in after-hours trading on Tuesday, with a slight increase on Wednesday.
Earlier this month, Nike also withdrew its full-year performance guidance after revenue fell below expectations, similarly leading to a significant drop in stock price after hours. Nike also postponed its investor day scheduled for November to allow new CEO Elliott Hill, who took office in mid-October, time to develop strategies.
Both companies have adopted a financial strategy known as "kitchen-sink," where the company discloses all possible negative information and losses at once over a period of time to show better performance in future financial reports. This is somewhat similar to the purpose of "financial cleansing" behavior by A-share listed companies.
Compared to stubbornly sticking to unrealistic goals and disappointing investors with misses time and time again, pausing guidance and replacing it with achievable targets is considered wise.
Consumer giants in crisis: Transformation takes time
Starbucks' suspension of performance guidance means abandoning the aggressive targets set by founder Howard Schultz two years ago, aiming for a 7% to 9% increase in global same-store sales by 2025 and a 15% to 20% annual revenue growth during the same period.
The goals are lofty, but the reality is harsh. Starbucks' same-store sales for the quarter ending September 29 fell by 7%, making it almost certain that the growth targets mentioned above will not be met.
Compared to the previous CEO Laxman Narasimhan's approach of stubbornly sticking to Schultz's goals but being forced to lower them multiple times, the new CEO Niccol's approach is considered wise.
On Tuesday, Niccol outlined in a video many areas that the company needs to improve, including simplifying the coffee shop's "overly complex menu," changing its marketing strategy, enhancing mobile ordering, redesigning stores to "look and feel like community coffee shops," and overall refocusing on coffee.
Analysis points out that Starbucks' approach reminds the market of a harsh reality: large-scale transformation takes time. William Blair analyst Sharon Zackfia believes that, although still optimistic that under Niccol's leadership, Starbucks can gradually return to positive growth in the 2025 fiscal year, revitalizing profitability may take until the 2026 fiscal year.
Nike is also facing performance challenges. In June this year, Nike lowered its profit guidance, triggering a strong market reaction with the stock price plummeting nearly 20% in a day. In a market environment where emerging brands continue to emerge and consumer preferences change rapidly, Nike has not been able to adapt to these changes promptlyAnalyst Randal Konik from Jefferies wrote in a report on Wednesday that Starbucks' example serves as a warning for Nike investors as well, as companies facing performance pressure when a new CEO takes office need time to repair:
Like Starbucks, Nike has a lot to fix before seeing significant sales improvements, and the changing market conditions over the past decade will not make things easy... We expect the road ahead to be challenging and believe that the transformation will take longer than what the market anticipates