Starbucks (SBUX) served up a mixed cup of quarterly results, with earnings per share missing Wall Street’s forecast but revenue coming in hot.
While profits fell sharply, a better-than-feared sales report and signs of traction in the company’s turnaround plan helped send shares higher in early trading.
U.S. Sales Stabilize as Turnaround Plan Takes Hold
For its fiscal third quarter ending June 29, Starbucks reported adjusted earnings per share of $0.50—down nearly half from the same period last year, when it posted $0.93. Analysts had been expecting $0.64. Still, revenue rose to $9.5 billion, beating the consensus estimate of $9.29 billion and representing 4% growth from a year ago.
The U.S. market, Starbucks’ largest, remains under pressure. Comparable store sales fell 2%, driven by a 4% decline in foot traffic. However, average ticket size grew 2%, indicating that those who did visit spent slightly more per order. The decline in U.S. traffic was marginally better than expected, and investors appeared relieved.
CEO Brian Niccol attributed the earnings miss largely to one-time expenses, including an 11-cent-per-share hit from a major leadership conference and tax items. He also noted that a $500 million labor investment, beginning next month, is a key part of the "Back to Starbucks" plan to reinvigorate the brand.
“While the financial results don’t yet reflect all the progress we’ve made, the signs are clear—we’re gaining momentum,” Niccol said.
China Sales Rebound as Global Expansion Continues
Abroad, Starbucks showed stronger results. In China, a critical growth market, same-store sales rose 2%—beating expectations—driven by a 6% increase in transactions. The company’s strategy of lowering prices on iced drinks appears to be paying off, helping Starbucks compete with fast-growing domestic rivals like Luckin Coffee.
Globally, the chain added 308 net new stores during the quarter, bringing its worldwide count to over 41,000 locations. For the first time ever, Starbucks' international operations generated more than $2 billion in revenue in a single quarter.
The company continues to explore strategic partnerships in China, where it operates more than 7,700 stores, to enhance its competitive positioning and capture long-term market share.
Profit Pressure Mounts, But Investments Are Strategic
Despite the top-line growth, Starbucks’ operating margin fell to 10.1%, down 6.5 percentage points from last year. The contraction reflects deliberate investments in store experience, staffing, and digital innovation—key tenets of Niccol’s turnaround blueprint.
The company is rolling out a new in-store service model, dubbed Green Apron, across U.S. stores starting in August. Early pilots have shown improved transaction times and customer satisfaction. Starbucks is also revamping its rewards program, which Niccol admitted had become too focused on discounts rather than meaningful engagement.
Meanwhile, Starbucks will close its underperforming “Pick Up” locations—small-format stores designed for mobile orders only—acknowledging that the concept lacked the community feel that has traditionally defined the brand.
Looking ahead, Starbucks plans to introduce more health-conscious menu items, including coconut-water teas, customizable energy drinks, and gluten-free options. These additions aim to re-energize customer interest and boost frequency, particularly among younger and wellness-focused demographics.
Conclusion
Though earnings came in well below expectations, investors took comfort in signs that Starbucks is making headway on its strategic reset. The U.S. business shows early signs of stabilization, China is rebounding, and the company is reinvesting with purpose. With CEO Brian Niccol at the helm—drawing from his turnaround playbook at Chipotle (CMG)—Starbucks appears poised to serve up a stronger brew in the quarters ahead.
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