Company Reports

Starbucks had been struggling against intensifying competition, with its value proposition falling flat with consumers. As such, we see the firm’s strategic pivot as prudent, with an emphasis on customer experience, a warm atmosphere, an efficient service model, effective advertising, and product innovation. In our view, these moves are restoring brand clout, supporting its premium standing, and reviving comparable sales growth. This underpins our view that Starbucks will return to positive comp sales growth in fiscal 2026, following two years of low-single-digit declines in North America (74% of fiscal 2025 revenue).

Starbucks will close about 250 North American units, or 1% of its global footprint, that it deems unfit to meet its elevated store-experience standards or financial performance. It now expects 440 net global openings in fiscal 2026 (from 600-650) and will incur $300 million in restructuring charges.

In the third quarter, Starbucks posted 8.1% North American comparable sales growth, driven by 4.5% and 3.5% lifts in transactions and checks, respectively. Largely due to sales growth, North American operating margin, excluding tariff refunds, expanded 100 basis points to 13.4%.

Starbucks had been struggling against intensifying competition, with its value proposition falling flat with consumers. As such, we see the firm’s strategic pivot as prudent, with an emphasis on customer experience, a warm atmosphere, an efficient service model, effective advertising, and product innovation. In our view, these moves are restoring brand clout, supporting its premium standing, and reviving comparable sales growth. This underpins our view that Starbucks will return to positive comp sales growth in fiscal 2026, following two years of low-single-digit declines in North America (74% of fiscal 2025 revenue).

Starbucks' global comparable sales popped 6.2%, including 7.1% in the US, boosted by a 4.3% lift in transactions and a 2.7% benefit from higher tickets. Adjusted operating margin expanded 120 basis points to 9.4% but was aided by lower depreciation costs on held-for-sale China assets.

Starbucks has fallen victim to a competitive restaurant landscape, as its value proposition has been missing the mark with consumers. As such, we see the firm’s strategic pivot as prudent, with an emphasis on customer experience, a warm atmosphere, an efficient service model, effective advertising, and product innovation. In our view, these moves should help restore brand clout, support its premium standing, and revive comparable sales growth. This underpins our view that Starbucks will return to positive comp sales growth in fiscal 2026, following two years of low-single-digit declines in North America (74% of fiscal 2025 revenue).

CEO Brian Niccol hosted his first Starbucks investor day, where the firm offered further details on its turnaround plan and put numbers behind its longer-term targets. The event followed fiscal 2026 first-quarter results that showed comparable sales improvement.

Starbucks brewed up 4% global comparable sales growth, including 4% in the US, driven by 3% higher traffic and a 1% mix benefit, marking the first positive domestic print in seven quarters. Labor investments and input inflation pushed adjusted operating margin down 180 basis points to 10.1%.

Starbucks has fallen victim to a competitive restaurant landscape, as its value proposition has been missing the mark with consumers. As such, we see the firm’s strategic pivot as prudent, with an emphasis on customer experience, a warm atmosphere, an efficient service model, effective advertising, and product innovation. In our view, these moves should help restore brand clout, support its premium standing, and revive comparable sales growth. This underpins our view that Starbucks will return to positive comp sales growth in fiscal 2026, following two years of low-single-digit declines in North America (74% of revenue). We also see the brand edging out competitors globally, with comps rising 4.7% and nudging ahead of global foodservice growth of 4.6%.

Starbucks has felt the industry's traffic slowdown, but its brand stands to withstand the pressure. The coffee giant isn't sitting still; it's ramping up investment in marketing, labor, remodels, and menu innovation to lift the experience and shore up its premium value proposition.

Starbucks agreed to form a joint venture with Boyu Capital in China and sell a 60% stake in the joint venture for $4 billion. It values the China operations at $13 billion, including the joint venture and net present value of licensing fees over the next decade or more.

Starbucks' sales grew 5% in the fiscal fourth quarter on 1% global comparable-store sales growth and store expansion. Adjusted operating profit fell 31% as the margin declined 500 basis points to 9.4%. Management is scheduled to provide a 2026 outlook at a January investor event.

Starbucks' business strategy will likely change materially, consistent with new CEO Brian Niccol's "Back to Starbucks" plan. The firm continues to play in a global category of one, with its $36 billion in 2024 revenue outpacing its closest global competitor, Inspire Brands' Dunkin', by a factor of 3 globally and by a factor of 2 in the firm's home US market. Recent strategic missteps, however, have stalled the firm's momentum, with global comparable store sales declining 2% in fiscal 2024 due to consumer price sensitivity, macroeconomic weakness, and a deteriorating value perception. Traffic fell by a brutal 10% in its core North American markets in the fourth quarter of 2024, but the decline narrowed to low single digits by the third quarter of 2025.

Starbucks' sales grew by 4% in the third quarter of fiscal 2025 as a global comparable store sales decline of 2% was more than offset by store expansion. Operating profit dropped 38% as operating margin fell 680 basis points to 9.9%.

Starbucks' business strategy will likely change materially, consistent with new CEO Brian Niccol's "Back to Starbucks" plan. The firm continues to play in a global category of one, with its $36 billion in 2024 revenue outpacing its closest global competitor, Inspire Brands' Dunkin', by a factor of 3 globally and by a factor of 2 in the firm's home US market. Recent strategic missteps, however, have stalled the firm's momentum, with global comparable store sales declining 2% in fiscal 2024 due to consumer price sensitivity, macroeconomic weakness, and a deteriorating value perception. Traffic fell by a brutal 10% in its core North American markets in the fourth quarter of 2024, but the decline narrowed to 4% in the first half of 2025.

Starbucks grew sales by 2% in the second quarter as its global comparable sales decline of 1% was more than offset by store expansion. Adjusted operating margin fell 450 basis points to 8.2%.

Wide-moat Starbucks announced the appointment of Cathy Smith as the new chief financial officer. Smith, who is currently the finance chief at the soon-to-go-private department store chain no-moat Nordstrom, will likely join over the next month. She will replace Rachel Ruggeri, who is leaving the firm after having served as the finance chief since 2021. We are maintaining our $87 per share fair value estimate, leaving shares rich. While we remain constructive about management's efforts to right the ship, we posit investors are overly optimistic about the firm's near-term recovery amid industrywide traffic challenges, promotional activity, and competition from at-home coffee.

Starbucks' business strategy will likely change materially, consistent with new CEO Brian Niccol's "Back to Starbucks" plan. The firm continues to play in a global category of one, with the firm's $36 billion in 2024 revenue outpacing its closest global competitor, Inspire Brands' Dunkin', by a factor of 3 globally and by a factor of 2 in the firm's home US market. Recent strategic misfires, however, have left the firm wandering in the wilderness, with global comparable store sales falling 2% in fiscal 2024 on the back of consumer price sensitivity, macroeconomic weakness, and deteriorating value perception. In the firm's fourth quarter of 2024, traffic fell by a brutal 10% in its core North American markets, with softness broadening from the afternoon daypart and occasional customers to the full gamut of more than 34 million Starbucks Rewards members, espousing substantial concern.

Starbucks' business strategy looks likely to change materially, consistent with new CEO Brian Niccol's "Back to Starbucks" plan. The firm continues to play in a global category of one, with the firm's $36 billion in 2024 revenue outpacing its closest global competitor, Inspire Brands' Dunkin', by a factor of 3 globally and by a factor of 2 in the firm's home US market. Recent strategic misfires, however, have left the firm wandering in the wilderness, with global comparable store sales falling 2% in fiscal 2024 on the back of consumer price sensitivity, macroeconomic weakness, and deteriorating value perception. In the firm's fourth quarter of 2024, traffic fell by a brutal 10% in its core North American markets, with softness broadening from the afternoon daypart and occasional customers to the full gamut of more than 34 million Starbucks Rewards members, espousing substantial concern.

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.