Key facts
- Starbucks was sued by shareholders alleging fraud over concealed sales declines in the U.S. and China.
- U.S. District Judge John Chun dismissed the lawsuit.
- The judge found Starbucks' explanation for CEO Laxman Narasimhan's statements on sales trends to be compelling.
- The lawsuit followed a significant drop in Starbucks' share price after it lowered its annual sales forecast.
- Starbucks reported same-store sales fell 4.4% in its latest quarter, with declines in the U.S. and China.
A federal judge has dismissed a lawsuit that accused Starbucks of defrauding shareholders by intentionally concealing declining sales in the United States and China. U.S. District Judge John Chun in Seattle ruled on Wednesday that Starbucks' explanation for former CEO Laxman Narasimhan's statements during a January 2024 analyst call was "at least as compelling" as the shareholders' claim that he was assessing current sales trends.
The shareholders, led by three New York pension plans, had alleged that Starbucks intentionally hid sales declines. The lawsuit followed a 16% drop in Starbucks' share price on May 1, 2024, one day after the company lowered its annual sales forecast and reported a 4.4% decline in same-store sales for its latest quarter. This decline included a 3% drop in the U.S. and an 11% drop in China.
Lawyers for the shareholders did not immediately respond to requests for comment. Current CEO Brian Niccol is implementing a "Back to Starbucks" turnaround plan aimed at simplifying menus, reducing wait times, upgrading stores, improving technology, and closing underperforming locations.