Starbucks’ fiscal Q1 earnings reflected a mixed but improving picture. The company reported revenue of about $9.9 billion, up roughly 5% year over year and ahead of expectations, supported by a rebound in global comparable-store sales, including positive transaction growth in the U.S. for the first time in several quarters. However, profitability remained under pressure, particularly in North America, leading to EPS of around $0.26, which fell short of consensus estimates. Overall, the results suggest early traction in Starbucks’ turnaround efforts on the demand side, even as margin recovery remains a key area to watch in the coming quarters.
Note: Starbucks FY'25 ended on September 28, 2025. Q1 2026 refers to the quarter ended on December 28, 2025.
Management expects global comparable-store sales to grow by at least 3% for the year, with a similar minimum sales growth rate in the U.S. as the company builds on recent momentum. Starbucks also projected full-year adjusted EPS in a range of approximately $2.15 to $2.40, suggesting moderate earnings expansion as revenue gains and operational improvements offset near-term cost pressures.
Starbucks’ “Back to Starbucks” strategy under CEO Brian Niccol is a multi-year turnaround plan focused on reviving customer demand, improving operational fundamentals, and driving sustainable profitability. The effort has several key components: repositioning Starbucks as a community “third place,” enhancing customer experience through store upgrades and service improvements, simplifying operations, innovating the menu, and strengthening loyalty engagement. Early execution has shown signs of traction — most recently with global comparable-store sales turning positive and stronger same-store sales growth in Q1 2026, outcomes management cites as evidence that the plan is working.
Operational priorities include rolling out the Green Apron Service model to boost speed and service quality, targeted store “uplifts” to improve comfort and atmosphere, and a revamped Starbucks Rewards program designed to deepen engagement and spending. Starbucks has also prioritized menu innovation, with new beverage and food offerings aimed at broader daypart appeal. Longer-term initiatives unveiled at investor day expand the blueprint, including growth targets through fiscal 2028, margin improvement goals, and global expansion plans, particularly with a licensed model in China to enhance international profitability.
At the same time, management has taken cost-rationalizing actions, such as closing underperforming stores and reducing non-retail roles, to reallocate resources toward frontline operations and strategic investments. While these moves introduce short-term headwinds to margins, they are intended to support a stronger sales foundation and reshape the cost structure for long-term growth.
Overall, the turnaround plan is progressing from foundational fixes toward growth initiatives, and recent performance trends suggest early momentum, though margin recovery and execution consistency remain key areas for continued monitoring.
Starbucks is the world's leading roaster and retailer of specialty coffee. Through its global network of owned and franchised coffee retail outlets, Starbucks offers a wide range of products like high-quality whole bean coffees, freshly brewed coffees, Italian-style espresso beverages, cold blended beverages, food items like sandwiches, premium teas, and coffee-making equipment.
Starbucks' stores are located near offices and residential areas. They are larger, compared to its licensed stores which are much smaller and mostly located at airports and supermarkets.
Starbucks also sells its packaged coffee and tea through retail channels such as grocery stores, warehouse clubs, convenience stores, and US food service accounts.
The Company-Operated Stores division is more valuable than the Franchise Stores division for Starbucks for the following two reasons:
Starbucks makes money through its company-owned stores as well as through franchise fees and royalties from franchised stores. Starbucks earns higher profit margins from franchised stores compared to company-owned stores because there are no operational and employee costs involved with franchised stores, hence Starbucks gets to keep the entire royalty & rent fee without paying for any costs.
Revenues earned from Starbucks' company-owned stores are much higher than the franchised stores. This is because, although there are costs involved, Starbucks owns 100% of the revenues from its restaurants, while it gets a percentage of the revenues (in the form of royalty fees) from its franchised restaurants.
Food & beverage companies, in general, increase their reach and profits by having a large base of franchised stores. For example, McDonald's has 95% of its stores franchised, making the franchise business more valuable to its stock. However, Starbucks has almost an equal number of company-owned stores and franchised stores. In FY'25, Starbucks had 41,620 stores: 52% company-operated and 48% licensed.
China remains a long-term growth driver for the company, as its GDP, is projected to grow from around $20 trillion in 2025 to nearly $28 trillion by 2027 - likely driven by a massive increase in its middle class. Moreover, the per capita coffee consumption in China is about one-half of one cup per person per year compared to approximately 300 cups per person per year in the U.S. While consumption levels in China may never be able to match those in the U.S., even attaining a small fraction of it will benefit the company immensely.
Most new restaurants the company plans to open are in China/Asia Pacific. The number of Starbucks outlets in these countries is still much less than the number in the U.S. New outlets opened will be a mix of company-operated and franchised restaurants.
SBUX intends to open a majority of its new U.S. restaurants in middle America and the South, with over 80% of stores built in the year being drive-thrus. The company states that its research has indicated significant opportunities for store expansion in higher-growth, and lower-cost markets, particularly when considering rising wages and occupancy costs.
