Starbucks ‘ plan to close underperforming coffeehouses is a “necessary” step in CEO Brian Niccol’s turnaround plan, according to Jim Cramer. “When you’re trying to get your same store sales turnaround, you take a look at the underperformers,” Jim said during Thursday’s Morning Meeting for Investing Club members, noting that CEO Brian Niccol is looking to close the weak stores and increase funding to the good ones. “It’s very bullish,” Jim added. “I would buy Starbucks here.” Starbucks shares were trading 1% lower at roughly $83 on Thursday after the coffee giant announced a $1 billion restructuring plan in an SEC filing. That plan calls for layoffs of 900 corporate workers and closures of select North American stores as Niccol pushes forward with his “Back to Starbucks” turnaround strategy aimed at boosting sales through faster service and better customer experiences. This marks the second round of job cuts under his tenure. In February, the company announced it would eliminate 1,100 corporate positions to simplify operations. Starbucks emphasized that future investments must be made “closer to the coffeehouse and the customer,” with a focus on its “Green Apron” service model, which includes investing more than $500 million in labor and hospitality. If that model doesn’t fit for a particular store, the company plans to close it and reallocate resources to a better-performing location. “These steps are to reinforce what we see is working and prioritize our resources against them,” Niccol wrote in a letter to employees on Thursday. “I believe these steps are necessary to build a better, stronger, and more resilient Starbucks that deepens its impact on the world and creates more opportunities for our partners, suppliers, and the communities we serve.” The job cuts and store closures come as Starbucks looks to resuscitate its struggling business. The chain has reported six straight quarters of declining same-store sales, with profitability trailing pre-pandemic levels . Shares of Starbucks are down 8.4% this year, while the S & P 500 is up 13%. While driving revenue growth remains a key challenge for Starbucks, restoring margins also depends on managing expenses. This restructuring is aimed at doing just that, by lowering overhead and simplifying operations to protect earnings power. Starbucks’ operating margin stood at 13% in its most recent quarter, well below the 17% the company delivered before the pandemic. Rising labor, commodity, and real estate costs are all pressuring profitability. Not everyone is happy with these changes. Thursday’s announcement was met with backlash from Starbucks’ workers’ union. “This announcement makes it clear things are only going backwards at Starbucks under Brian Niccol’s leadership. Yet again, we’re experiencing new policies and major decisions being made with zero barista input.” As for investors, the restructuring is a test of whether Niccol can close the margin gap and put Starbucks back on track. Despite the turnaround taking longer than expected, Jim hasn’t changed his view on Niccol’s ability to get the coffee giant back on track. We reiterate our buy-equivalent 1 rating on Starbucks stock and price target of $100. (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
