Only two FTSE 100 shares have fared worse than Diageo (LSE: DGE) over the last three years. For the record, they’re Burberry and Entain.

But unlike them, spirits giant Diageo was once a fixture on lists of top 10 UK blue-chips. The initial damage was inflicted by a profit warning in November 2023 over falling sales in Latin America & the Caribbean, which I foolishly saw as a buying opportunity.

It was merely a warning shot. Diageo has since endured a catalogue of problems, from the Latin American inventory debacle to falling US sales, tariffs, weak Chinese white spirits and the loss of legendary boss Ivan Menezes. Debra Crew’s two-year spell as chief executive ended abruptly last year, leaving the group searching for a saviour. The shares are down 49% over the last three years.

A troubled turnaround

My hopes flickered into life when former Tesco boss Sir Dave Lewis was appointed. He arrived in January and promptly slashed the dividend in half, cutting the income stream that had helped investors cling on through the pain.

Full-year results (6 August) were more encouraging. Organic operating profit rose 2%, free cash flow climbed to $3.2bn and net debt fell to $20.5bn. Guinness remains a star performer, with organic sales growth of 10.9%. Yet after an initial bounce, Diageo has retreated again.

There are broader worries, too. Younger generations appear to be a bit sniffy about alcohol. Or maybe just too skint to buy it. And the rise of GLP-1 weight-loss drugs could further knock demand.

Lewis has work to do

When a company takes a beating, it can take years to turn things around. When they finally get going though, they can really take off. Rolls-Royce, anybody?

I’m not suggesting Diageo will repeat that performance. Lewis has plenty to do first. The group still has around $20bn of debt. Diageo says its new operating framework should deliver $850m of savings over two years, but further cost savings are required.

Lewis is also keen to build on Guinness’s success, which has been quite phenomenal. But there’s a chance the trend could fade, as trends do.

I’m less excited by the planned push into canned ready-to-drink products. It feels like the kind of idea you come up with when you’re not quite sure what else to do, but you’ve spotted someone else in your sector is making money from it.

Cheap but not compelling

The shares trade on a price-to-earnings ratio of around 14. That’s certainly cheap for a business with Diageo’s collection of global brands. But the trailing 2.1% yield gives investors little to cling to while they wait.

I think Diageo shares are worth considering for comeback fans. But until the cost-of-living crisis easies, the economy starts growing and people have more money in their pockets, I can’t see the shares really cracking on. As inflation rises, that day seems further off than we’d like. I see other FTSE 100 growth stocks to consider first.

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Harvey Jones owns shares in Burberry, Diageo and Rolls-Royce.