Starbucks delivered a mixed set of quarterly results this week, signaling that its long awaited turnaround strategy is beginning to gain traction even as higher costs continue to pressure profitability.
The coffee giant reported that customer traffic increased for the first time in roughly two years, driven by renewed engagement from both loyalty members and casual customers. At the same time, margins were squeezed by higher coffee prices, restructuring expenses, and ongoing tariff pressures.
Investors initially welcomed the signs of operational progress, sending shares more than 8% higher in premarket trading following the earnings release.
“Our Q1 results demonstrate our ‘Back to Starbucks’ strategy is working and we believe we’re ahead of schedule,” CEO Brian Niccol said in a statement. “It’s great to see the sales momentum driven by more customers choosing Starbucks more often, and this is just the beginning.”
The quarter offers early validation that Niccol’s leadership reset is stabilizing the business after several challenging years marked by inflation, shifting consumer behavior, labor pressures, and rising competition from lower priced coffee chains.
Quarterly Results Beat Revenue Expectations but Miss on Earnings
For the fiscal first quarter ended December 28, Starbucks reported revenue that exceeded analyst expectations, while adjusted earnings per share came in slightly below forecasts.
Here is how the company performed compared with Wall Street estimates compiled by LSEG:
- Earnings per share: 56 cents adjusted versus 59 cents expected
- Revenue: $9.92 billion versus $9.67 billion expected
Net income attributable to Starbucks fell sharply to $293.3 million, or 26 cents per share, compared with $780.8 million, or 69 cents per share, in the same quarter last year.
Management attributed the decline primarily to costs associated with restructuring initiatives, elevated commodity prices for coffee, and tariffs that are impacting sourcing and logistics expenses.
Excluding restructuring charges, impairment costs, and other one time items, Starbucks earned 56 cents per share.
Despite the margin pressure, net sales rose 6% year over year to $9.92 billion, marking the company’s second consecutive quarter of positive same store sales growth.
“We’re seeing exactly what we want to see in our top line at this point in our turnaround,” CFO Cathy Smith said on the company’s earnings conference call.
Traffic Growth Returns for the First Time in Two Years
One of the most encouraging data points for investors was the return of transaction growth. Global same store sales increased 4%, exceeding StreetAccount estimates of roughly 2.3%. Customer traffic rose 3%, marking the first time transactions have expanded in two years.
Even more notably, Starbucks reported transaction growth from both loyalty members and non members for the first time since the second quarter of fiscal 2022. This suggests that marketing, product innovation, and in store service improvements are beginning to resonate with a broader customer base.
Smith noted that same store sales momentum has continued into January, signaling that the holiday strength was not a one off seasonal bump.
In the U.S., same store sales also climbed 4%, supported by strong demand for seasonal offerings such as the viral Bearista cup and staple beverages like the peppermint mocha. Niccol previously said the holiday menu launch marked the best single day in the company’s North American business history.
Management also credited improvements in operational execution through the company’s Green Apron Service program, which focuses on faster service times, better staffing efficiency, and enhanced hospitality inside cafes.
Outside the U.S., international same store sales increased 5%, highlighting improving global consumer engagement.
China Rebounds and Strategic Partnership Takes Shape
China, Starbucks’ second largest market, posted same store sales growth of 7% during the quarter, an important development after several years of uneven recovery tied to economic slowdowns and changing consumer behavior.
During the quarter, Starbucks announced plans to form a joint venture with Boyu Capital to operate its China business.
“This partnership will help us expand into more cities, deliver exceptional coffee experiences, create new career opportunities for partners, and strengthen Starbucks’ position as a global brand for long term growth,” Niccol said on the company’s earnings conference call.
The transaction is expected to close in the second quarter of fiscal 2026, subject to regulatory approval. Starbucks’ current outlook assumes the company will continue operating China retail stores during the second half of the fiscal year.
For investors, the China partnership represents both a risk management strategy and a growth catalyst. Local partnerships can help reduce regulatory exposure while improving market responsiveness in a highly competitive consumer environment dominated by domestic coffee chains offering aggressive pricing.
Store Expansion Resumes After U.S. Rationalization
Starbucks opened 128 net new locations during the quarter as it resumes measured expansion after shuttering approximately 400 underperforming U.S. stores last year.
For fiscal 2026, the company plans to open between 600 and 650 net new company owned and licensed cafes globally.
Management appears focused on balancing growth with profitability discipline, prioritizing high traffic locations, digital friendly layouts, and markets with favorable demographic trends.
This measured expansion strategy reflects lessons learned from over saturation in certain U.S. markets during the prior growth cycle.
Starbucks Restores Financial Guidance After Suspension
For the first time since suspending guidance in October 2024 amid macro uncertainty, Starbucks reinstated its financial outlook.
For fiscal 2026, the company expects:
- Adjusted earnings per share: $2.15 to $2.40
- Global and U.S. same store sales growth: At least 3%
The earnings forecast sits slightly below Wall Street’s consensus estimate of approximately $2.35 per share, reflecting management’s conservative stance as turnaround investments continue.
While the guidance signals stabilization, investors should expect near term margin pressure to persist as Starbucks invests in labor, technology upgrades, supply chain efficiency, and international expansion.
Macro Pressures Remain a Key Variable for Margins
Starbucks continues to face macro headwinds that could influence earnings trajectory over the next several quarters.
Coffee prices remain elevated due to weather disruptions in major producing regions and lingering supply chain tightness. Tariffs remain a cost factor on imported equipment, packaging, and certain ingredient categories.
Wage inflation remains sticky across the U.S. service sector, while consumer spending remains sensitive to interest rates and household budget pressures.
However, easing inflation trends and potential interest rate cuts later in 2026 could improve discretionary spending patterns, benefiting premium food and beverage brands like Starbucks.
Investor Day Could Provide More Strategic Clarity
Investors are expected to receive additional detail on Niccol’s turnaround roadmap at the company’s investor day in New York City. Management plans to outline updated long term financial targets, capital allocation priorities, and operational benchmarks.
Key areas investors will be watching closely include:
- Long term margin recovery targets
- Store level productivity improvements
- Digital ordering and loyalty monetization growth
- China expansion economics
- Capital return strategy including dividends and buybacks
Clear execution metrics will be critical for sustaining investor confidence as Starbucks works through the middle phase of its transformation.
What It Means for Investors
Starbucks’ results signal that customer momentum is returning, a critical inflection point for any retail turnaround. Traffic growth, loyalty reactivation, and improving international performance provide tangible evidence that the strategy is gaining traction.
At the same time, earnings pressure highlights the reality that turnarounds often require upfront investment before profitability rebounds. Investors should expect some volatility as cost pressures and macro uncertainty persist.
Longer term, successful execution could position Starbucks to reaccelerate earnings growth, rebuild margins, and regain its premium brand multiple in the market. For patient investors, upcoming investor day disclosures and quarterly traffic trends will likely determine whether the recovery story remains credible.
As consumer spending stabilizes and operational improvements compound, Starbucks may gradually reclaim its role as a durable global consumer growth stock rather than a restructuring narrative.
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