Image Source: Starbucks

Starbucks (Nasdaq: SBUX) stock was moving lower on Friday, down roughly 1% in afternoon trading. The catalyst was a major corporate shakeup at the coffee retailer.

The struggling coffee shop announced that it will be closing 1% of its stores in North America this year. As of the end of the fiscal third quarter, which ended June 29, Starbucks had 18,734 total stores, including those it owns (11,453) and licenses (7,281).

CEO Brian Niccol said the company will finish the fiscal year, which ends September 30, with 18,300 stores, so that’s a net reduction of 434 stores. The stores will be notified this week.

It is part of a $1 billion turn around plan for Starbucks, which has had slowing revenue and declining earnings. In the last quarter, revenue increased 3% but same store sales dropped 2%. Also, earnings were down 47% due to higher expenses associated with the Back to Starbucks turnaround plan.

With the store closures, Starbucks also announced that staff will be reduced by about 900. These positions are non-retail partner roles, meaning they aren’t customer-facing but corporate or administrative jobs.

As we build toward a better Starbucks, we’re investing in green apron partner hours, more partners in stores, exceptional customer service, elevated coffeehouse designs, and innovation to create the future. We will continue to carefully manage costs and stay focused on the key areas that drive long-term growth,” Niccol said.

Part of that includes renovating about 1,000 stores next year.

$1 billion in costs incurred

While these changes are meant to streamline the organization over the long-term, it will come with $1 billion in short-term costs.

In an SEC filing, the company said it will incur approximately $1 billion in charges related to the store closures, support organization transformation, and other restructuring activities. It expects a significant portion of the charges to be incurred in fiscal 2025.

The costs break down to $150 million for employee separation benefits, $400 million for the disposal of store assets, and $450 million for lease costs due to store closures.

These costs will certainly have an impact on the upcoming Q4 earnings, which Starbucks reports on October 29.

I know these decisions impact our partners and their families, and we did not make them lightly. 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,” Niccol said.

Starbucks stock is down 9% YTD and 15% over the past year, and it is still trading at 36 times earnings – not cheap. A majority of analysts rate it as a buy, but it still looks over priced to me and with these changes taking place, I wouldn’t be shocked it if it dips lower in the near-term.

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