Starbucks Earnings: Initiatives Support Gradual Sequential Traffic Improvement Amid Tough Landscape

Given that wide-moat Starbucks’ turnaround is in its early stages amid a challenging restaurant landscape, expectations were tempered going into its fiscal 2025 first-quarter report. Although its sales of $9.4 billion were flat and exceeded our $9.3 billion estimate, its earnings per share of $0.69 fell $0.03 short. We don’t anticipate making a material change to our $86 fair value estimate, leaving shares as rich. While we remain optimistic about management’s efforts to bolster its brand positioning through in-store investments, process improvements, and menu innovation, we posit investors are overly optimistic about the firm’s near-term recovery amid industrywide traffic challenges, heightened promotional activity, and competition from the grocery channel.