Starbucks Corporation
Analysis
Starbucks has turned: comps have grown for four straight quarters on more visits, and margins and earnings have now risen two quarters in a row. It turns on whether the service rebuild keeps winning customers back faster than it costs to run. How much do the extra labour hours cost per store each week?
- The recovery is coming from service, not from discounts.
Comps turned positive in Q4 FY2025 and have built every quarter since, led by more visits rather than higher prices. Rewards members and non-members both bought more for the first time since 2022, so the sales look like habits.
- Profit has started arriving behind the sales, faster than planned.
Q2 FY2026 was the first quarter in more than two years to grow sales and profit at once, and Q3 followed with a jump in margin and a 70% rise in earnings. Sales beat expectations all four quarters; earnings missed first, then beat. How much of the $2 billion cost plan is already showing up in margins?
- The margin improvement is real, but smaller than the headline.
Q3's margin jump was flattered by tariff refunds and by China's cafes leaving the books, while North America's margin only improved once those refunds were excluded. The spending is committed, so the visits have to keep coming. What would North America's margin look like without the tariff refunds?
- Two-thirds of North American stores now meet the service standard. The rest are the growth still on the table, and lifting them costs little because the staff are already in place.
- Uplift renovations refresh cafes without ever closing them. Refreshing a cafe costs a fraction of building one and never shuts it, so the extra visits arrive almost free.
- Coffee and tariff costs ease from here, as management expects. Cheaper beans and duties fall straight to profit, so the same sales earn more without selling an extra drink.
- A third of North American stores still miss the service standard. They are already being paid the bigger wage bill, so if they don't improve, the cost stays and the sales don't come.
- The relief on coffee and tariffs depends on markets Starbucks does not control. If prices stay high, the added wage bill and the higher bean cost land together and profit grows slower than sales.
- Building in North America stays minimal while more cafes may close. Growth then has to come from selling more in the stores that remain, with no new ones adding sales.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Sale | ≥$1K | Jul 31 | Sep 22 |
Donald Trump Republican · Executive | Sale | ≥$15K | Jul 8 | Sep 22 |
Donald Trump Republican · Executive | Purchase | ≥$1K | May 15 | Jul 1 |
Donald Trump Republican · Executive | Purchase | ≥$15K | Mar 25 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$1K | Mar 17 | May 13 |
Congressional trading data provided by QuiverQuant
How Starbucks turned $37.2B of revenue into $2.9B of operating income.
| Revenue | ||
|---|---|---|
| Beverage | $22.5B | ▲ 3.00% YoY |
| Other Products | $7.6B | ▲ 0.68% YoY |
| Food | $7.0B | ▲ 4.46% YoY |
| Total revenue | $37.2B | |
| Gross profit | $9.0B | 24.2% |
| Operating income | $2.9B | 7.9% |