SEATTLE (Legal Newsline) - A class action lawsuit against Starbucks has been filed in Washington by investors who accuse the coffee chain of making "false and misleading" statements about its financial health.
According to the investors, Starbucks committed securities fraud by misrepresenting information about its 2023 revenue and expected guidance for fiscal year 2024.
The suit, which was filed on Aug. 28 in the U.S. District Court in the Western District of Washington, claims that Starbucks provided "overwhelmingly positive statements" regarding the company's current and possible future performance.
Additionally, the plaintiffs say the company deliberately concealed "adverse facts" about Starbucks' reinvention strategy, leading to artificially inflated securities prices.
When more accurate details about Starbucks' performance were made available to the public, investors suffered damages, according to the suit.
The allegations surround Starbucks' activities during the second quarter of 2024, during which Starbucks reported negative same-store sales for the first time since the height of the pandemic in 2020. The company's shares dipped by 16% in a single day.
In an earnings call in May, CEO Laxman Narasimhan connected the company's disappointing sales figures to inflation.
“In this environment, many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent," Narasimhan said.
Starbucks' third-quarter performance was similarly abysmal, with the company reporting a 3% same-store sales decline. Narasimhan again attributed the company's disappointing performance to decreased traffic driven by nationwide economic woes.
In August, Narasimhan was abruptly removed from his role as Starbucks CEO amid continued slow sales and slumping stock prices. He was replaced with Chipotle's Brian Niccol, who took the helm on Sept. 9.
In an open letter, Niccol indicated that significant changes are on the way for Starbucks. Nonetheless, he acknowledged that the company is failing to meet expectations at some locations, particularly in the U.S.
"We aren’t always delivering," Niccol said. "It can feel transactional, menus can feel overwhelming, product is inconsistent, the wait too long or the handoff too hectic."
Amid the recent filing of the class action suit, some experts are warning the Seattle-based coffee chain will continue to face performance challenges for the foreseeable future.
In September, Jeffries analyst Andy Barish downgraded Starbucks shares to Underperform, saying that the company will face "a lot of uncertainty over the next 12 months" following Niccol's takeover.
The class action lawsuit seeks to recover the losses of all Starbucks shareholders who were adversely impacted by the alleged securities fraud between the period of Nov. 2, 2023, and April 30, 2024.
In a statement to Legal Newsline, a Starbucks spokesperson denied the suit's allegations.
"The allegations in the complaint are without merit," the spokesperson said. "Starbucks takes great care in communicating transparently and authentically with its stakeholders, including its investors, partners, customers, and community."
This lawsuit adds to the coffee giant's current legal issues including a lawsuit from longtime supplier Bodum which has called into question ethical lapses in Starbucks' supply chain.
New York's Rosen Law Firm is actively recruiting a lead plaintiff as well as other investors to join the class action lawsuit. The firm did not respond to Legal Newsline's request for comment.