Starbucks Earnings: Sales Momentum Builds as “Back to Starbucks” Scales
- Hardik Shah
- 2 days ago
- 5 min read
TLDR
Revenue Strength: Net revenues rose ~6% to $9.9B, driven by +4% global comparable store sales led by transactions.
Margin Trends: Operating margin compressed as Starbucks reinvests in labor and absorbs coffee/tariff inflation—management expects pressure to ease in 2H.
Forward Outlook: FY2026 guide calls for ≥3% comps, EPS $2.15–$2.40 (non-GAAP), and 600–650 net new stores.
Business Overview
Starbucks is the world’s largest specialty coffee retailer, operating a global footprint of 41,118 stores across company-operated (52%) and licensed (48%) locations, with the U.S. (16,911 stores) and China (8,011 stores) representing ~61% of the global base.
Financial reporting is organized into three core segments: North America, International, and Channel Development (at-home and ready-to-drink partnerships).
Starbucks Earnings Q1'26
Revenue
Consolidated: Net revenues were $9.915B, up ~5.5% year-over-year, supported by growth in company-operated revenue (+~5%) and “other” revenue (+~25%), while licensed store revenue was slightly down.
Comparable store sales: Global comps increased +4%, driven by +3% comparable transactions and +1% ticket.
“Our Q1 results demonstrate our 'Back to Starbucks' strategy is working and we believe we're ahead of schedule… It’s great to see the sales momentum driven by more customers choosing Starbucks more often, and this is just the beginning.” — Brian Niccol, Chairman & CEO
Segment performance snapshot
North America: Revenue $7.281B (+3%); comps +4% (transactions +3%, ticket +1%). Operating margin 11.9%, down 480 basis points (bps) year-over-year.
International: Revenue $2.065B (+10%); comps +5% with China comps +7% (transactions +5%, ticket +2%). Operating margin 13.7%, up 100 bps.
Channel Development: Revenue $522.7M (+20%); operating margin 41.3%, down 640 bps on mix and higher product costs.
Margins and profitability
Operating income (GAAP): $890.8M, down ~21%, with operating margin 9.0% (vs. 11.9% prior year).
Operating margin drivers: Starbucks cited labor investments tied to “Back to Starbucks,” plus inflation pressures (elevated coffee pricing and tariffs).
Earnings per share (EPS): $0.26 GAAP vs $0.56 non-GAAP (non-GAAP down ~19%).
Tax: The GAAP effective tax rate spiked to 61.7%, driven by discrete impacts tied to the China “held for sale” classification and changes in reinvestment assertions.
“With our 'Back to Starbucks' initiatives gaining traction, we have clear line of sight to translating topline strength into sustainable earnings growth…” — Cathy Smith, Executive Vice President & CFO
Forward Guidance
Starbucks introduced FY2026 guidance calling for:
Global and U.S. comps: 3% or greater
Net revenues: growth at a similar rate to comps
Operating margin: slight year-over-year improvement
EPS: $2.15 to $2.40
Net new stores: ~600 to 650 globally
On the call, management emphasized that margin improvement is expected to be back-half weighted, reflecting seasonality, anniversarying labor investments, continued sales leverage, and easing cost pressure.
Risks & opportunities
Key watch-items embedded in management commentary:
Coffee and tariff inflation: Management expects coffee price and tariff pressures to peak in Q2 and “find some relief” in the back half.
Operating leverage vs. reinvestment cadence: Starbucks is explicitly prioritizing top-line recovery first, while building a pathway to margin and earnings growth.
China transition complexity: Starbucks classified China retail ops as held for sale and expects a joint venture close in spring, subject to approvals.
Operational Performance
Starbucks’ quarter reads like a playbook for service-led traffic recovery—tightening in-store execution, improving throughput, and building repeatable operating routines.
What improved (and why it matters):
Service speed and reliability: Average café and drive-thru service times ran below four-minute targets, even with “meaningful transaction growth.”
Mobile order discipline: Starbucks emphasized “bringing order to mobile orders,” with a push toward accuracy and on-time readiness.
Store leader stability: New expectations for coffeehouse leaders to stay in role at least three years, tying leadership continuity to better culture and performance.
Operational tooling: Starbucks scaled Green Dot Assist, an artificial intelligence (AI)-powered knowledge search tool, to support beverage builds and troubleshooting in North America.
Segment Performance Snapshot (operational lens):
North America’s comp strength was explicitly described as transaction-led, with both Rewards and non-Rewards customers growing transactions.
Management cited pilot stores (650) outperforming the fleet by ~200 bps in comps, implying early evidence that service model changes can scale.
Market Insights
Two competitive dynamics stood out in management’s framing:
Speed + consistency is back as a differentiator. Starbucks is pushing throughput and operational consistency as the foundation for transaction growth.
Format ecosystems matter. Management described Starbucks’ café + drive-thru + mobile order pickup as an “ecosystem” and argued that when execution is strong across all three, Starbucks is “unmatched.”
Consumer Behavior & Sentiment
Starbucks’ narrative is that demand is improving without needing to “buy” traffic through discounting—a key signal on brand health and pricing power.
Rewards health: U.S. Starbucks Rewards 90-day active members reached 35.5M (record), and Rewards transactions grew year-over-year for the first time in eight quarters.
Value perception: Management said value perception “held strong,” and argued the company is delivering greater value via innovation and connection “not through discounts.”
Strategic Initiatives
1) “Back to Starbucks” execution engine
At the core is a service model reset (Green Apron Service), paired with marketing/menu innovation and better digital experiences.
2) Coffeehouse Uplift and “third place” reboot
Starbucks completed ~200 Coffeehouse Uplifts (notably Southern California and New York City) and plans >1,000 by the end of FY2026 to “reclaim the third place.”
3) Daypart strategy and menu personalization via digital infrastructure
Management framed the morning as a “ritual” and the afternoon as a “reset,” with digital menu boards enabling dayparted menus and more relevant beverage/food lineups.
4) China: strategic partnership and portfolio repositioning
Starbucks expects Boyu to acquire up to 60% of China retail operations, with Starbucks retaining 40%, continuing to own/license the brand and intellectual property.
Capital Allocation
Dividends
Starbucks declared $0.62 per share in cash dividends for the quarter and reported 63 consecutive quarters of dividend payouts with an 18% compound annual growth rate (CAGR) over that period.
Buybacks
The quarter’s cash flow statement does not show share repurchases as a financing use of cash (dividends and withholding taxes on share-based awards were the notable outflows).
Debt & liquidity
Cash and cash equivalents ended the quarter at $3.41B.
Long-term debt was $14.58B (plus $1.50B current portion).
Management also indicated plans to use China transaction proceeds for debt reduction and balance sheet strengthening (timing dependent).
The Bottom Line
Starbucks’ quarter reinforces a clear sequencing: fix service → rebuild traffic → translate growth into margins. Three investor-oriented takeaways:
Transaction-led comps are the most important “quality” signal in this print—and Starbucks is explicitly pointing to both Rewards and non-Rewards transaction growth as evidence the brand is regaining frequency and reach.
Margin pressure is currently “by design” and “by input costs,” with labor reinvestment and coffee/tariff inflation compressing profitability; management’s back-half margin improvement assumption will be a key execution test.
Cost discipline is becoming a formal program, not a slogan. Niccol described a “clear plan” to “track down about $2 billion of costs,” supported by a project-based operating cadence.
“We’ve got a clear plan in place, to basically track down about $2 billion of costs.” — Brian Niccol, Chairman & CEO
Key risks/inflection points to watch: the durability of transaction growth as Starbucks scales the service model across the fleet; the timing of coffee/tariff relief relative to pricing and mix; and how the China structure change ultimately impacts consolidated revenue, margins, and capital allocation flexibility.
—