By Owen Tucker-Smith and Heather Haddon

Starbucks is moving away from operating stores that only accept mobile orders for pickup because they don't have the right vibes.

Executives from the world's largest coffee chain said Tuesday that the changes are part of a broader reshaping of its portfolio of U.S. stores.

The company operates around 80 to 90 locations, some of which are in office buildings, that don't offer seating and are designed to get customers out quickly. Some locations could be converted to locations with seats.

"We found this format to be overly transactional and lacking the warmth and human connection that defines our brand," Chief Executive Brian Niccol told investors on a Tuesday earnings call.

The chain has started work on a prototype "coffeehouse of the future" with 32 seats and a drive-through that it expects to open in its next fiscal year, he said.

Since Niccol became CEO last year, he has pushed for Starbucks to offer more welcoming environments, and invest in stores and worker training to boost service.

Chief Financial Officer Cathy Smith told investors that Starbucks is investing more than $500 million to increase staffing in its U.S. company-operated stores in the next year.

The changes are part of the company's response to a monthslong sales slump. On Tuesday, the company said same-store sales declined for the sixth consecutive quarter and that a decline in orders offset higher average ticket prices.

Business conditions aren't getting any easier. Smith cautioned investors of an uncertain consumer environment ahead and said the company was taking a conservative position on its results for the current quarter. Both the tariff environment and coffee prices are dynamic, Smith said, adding that executives were confident the company's finances would improve in 2026.

Competition is growing for Starbucks in the U.S. and its key China market, with rivals pitching faster service and cheaper drinks.

Niccol said the turnaround under way at Starbucks is "ahead of schedule." Stores involved in a pilot program, meant to improve the customer-service experience, have reported an improvement in service times and sales, Niccol said. The company is also testing new technology to try to speed up and better schedule orders, as well as introducing on-trend menu options like protein-infused cold-foam beverages.

"While our financial results don't yet reflect all the progress we've made, the signs are clear -- we're gaining momentum," Niccol said.

Starbucks shares rose around 3% in after-hours trading.

For its third quarter ended June 29, Starbucks reported adjusted earnings of 50 cents a share, sharply lower than what analysts polled by FactSet expected. Earnings were pressured by company investments in its staff as well as a June internal leadership summit.

Investors are closely watching how much the turnaround will cost, particularly when it comes to additional investments in labor. Niccol is also pushing to cut expenses, including offering buyouts to corporate workers and stock grants to executives who meet cost-cutting and operations goals.

Write to Owen Tucker-Smith at Owen.Tucker-Smith@wsj.com and Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

July 29, 2025 18:22 ET (22:22 GMT)

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