By Jonathan Stempel (Reuters) -Starbucks must face a lawsuit claiming it defrauded shareholders by concealing declining sales in the United States and China, its largest markets, leading to a 16% drop in its stock price after the coffee chain revealed the unexpected weakness. In a decision late on Wednesday, U.S. District Judge John Chun in […]
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Starbucks must face shareholder lawsuit over surprise sales decline
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By Jonathan Stempel
(Reuters) -Starbucks must face a lawsuit claiming it defrauded shareholders by concealing declining sales in the United States and China, its largest markets, leading to a 16% drop in its stock price after the coffee chain revealed the unexpected weakness.
In a decision late on Wednesday, U.S. District Judge John Chun in Seattle said shareholders can try to prove Starbucks intentionally misled them in a January 2024 analyst call by touting successes in its “reinvention plan.”
These included statements that upgrades in equipment, staffing and scheduling would create a “better experience” for employees, and lead to increased customer spending and loyalty.
Chun said Starbucks could also be sued for saying in a January 2024 regulatory filing there were “no material changes” to risks affecting its business, including as to whether the reinvention plan would succeed.
Shareholders can also pursue some claims against former Starbucks CEO Laxman Narasimhan. Chun dismissed several other claims.
A Starbucks spokesperson said on Thursday the Seattle-based company intends to continue defending against the allegations. Lawyers for the shareholders, who are led by three pension plans in New York, did not immediately respond to requests for comment.
Starbucks disappointed investors on April 30, 2024, when it lowered its annual sales forecast and said same-store sales fell 4.4% in its latest quarter, including declines of 3% in the United States and 11% in China.
Analysts expected same-store sales to rise. Starbucks said results were hurt by economic pressure on consumers, bad U.S. weather, competition in China, and many customers cancelling app orders because wait times were too long and menu items were unavailable.
The 16% decline in Starbucks’ share price on May 1, 2024, wiped out about $16 billion of market value.
Brian Niccol, who became CEO in August 2024, has pursued a “Back to Starbucks” turnaround plan that has focused on filling orders faster, simplifying menus, upgrading stores, and closing poorly performing stores. Same-store sales rose 1% in the latest quarter.
(Reporting by Jonathan Stempel in New YorkEditing by Rod Nickel)