Espresso Shot of Optimism: Starbucks Ahead of Schedule on Turnaround

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Starbucks’ fiscal third-quarter results painted the picture of a turnaround still in its early innings but showing tangible signs of progress under CEO Brian Niccol. While earnings fell short of expectations—adjusted EPS came in at $0.50 versus estimates of $0.65—revenue beat forecasts at $9.5 billion versus $9.31 billion expected. Same-store sales declined 2% globally, marking the company’s sixth straight quarterly contraction, but the decline was no worse than feared, and shares rose 2.7% in response as investors focused on operational improvements and Niccol’s early success in stabilizing the business. Niccol, who previously engineered a successful turnaround at Chipotle, stressed that Starbucks is “ahead of schedule” in building a stronger foundation for future growth through its “Back to Starbucks” strategy.

The headline numbers showed a mixed quarter. On the top line, consolidated revenue increased 4% year-over-year, aided by net new store growth of 6% and currency tailwinds in the international business. However, profitability continued to face pressure, with adjusted operating margin contracting 660 basis points year-over-year to 10.1%, reflecting deleverage, inflation, and significant labor investments tied to the new Green Apron Service model and Leadership Experience 2025 program. Net income fell to $558 million, or $0.49 per share, down sharply from $1.05 billion, or $0.93 per share, a year earlier. Management noted that a discrete tax item and a one-time expense related to the Leadership Experience event weighed on EPS by about $0.11.

In North America, which accounts for the bulk of Starbucks’ business, revenue rose 2% to $6.9 billion. Comparable store sales fell 2%, a slightly better result than analysts anticipated, as a 3% drop in transactions was partially offset by a 1% increase in average ticket size. U.S. comps declined 2%, with transactions down 4% but ticket growth of 2% softening the blow. Importantly, management highlighted early progress in reversing a decline in non-Starbucks Rewards member transactions, which turned positive year-over-year for the first time since the pandemic. Niccol emphasized that partner engagement and customer connection scores are improving, with more U.S. coffeehouses now posting positive transaction comps.

International markets provided a brighter spot. Revenue climbed 9% year-over-year to more than $2 billion, marking a record quarter for the segment. Same-store sales were flat overall, but China—Starbucks’ second-largest market—posted 2% growth, driven by a 6% increase in transactions despite a 4% decline in average ticket. The improvement in China is noteworthy, representing the first positive comp in more than a year, though management acknowledged competition remains fierce from rivals like Luckin Coffee. Delivery transactions in China surged more than 25% year-over-year, a sign that digital and convenience channels are resonating.

Global same-store sales declined 2%, in line with recent trends, but the sequential improvement in key markets like China and Canada offered encouragement. Outside of the U.S. and China, seven of Starbucks’ top 10 international markets delivered positive comps, underscoring the breadth of the recovery. The company ended the quarter with 41,097 stores worldwide, having added 308 net new locations during the period.

Looking forward, Starbucks did not issue formal guidance but struck a cautiously optimistic tone. CFO Cathy Smith reiterated that Q4 would likely see continued investment-related margin pressure but stressed confidence in the longer-term trajectory. The Green Apron Service—a new service model designed to enhance in-store hospitality—is being rolled out across all 10,000 U.S. company-operated stores beginning in mid-August, ahead of the key fall and holiday seasons. Management said early pilot results showed stronger transactions, faster service times, and improved customer satisfaction. Alongside this, Starbucks plans to invest over $500 million in additional labor hours over the next year to support the rollout.

Niccol also previewed a wave of innovation set for 2026, including new beverage platforms like protein cold foam, artisanal baked goods, coconut-water coffee drinks, and a reimagined Rewards program. He underscored the company’s focus on making its cafes welcoming again, reversing recent years’ trends of reducing seating in favor of mobile and drive-thru. Starbucks is also reviewing its North American store portfolio, with plans to sunset underperforming mobile pickup-only formats and introduce new lower-cost store prototypes with better unit economics.

Despite the EPS shortfall, analysts and investors took the quarter in stride. The market reaction—shares up 2.7% post-print—reflected recognition that expectations had been tempered and that the turnaround story remains intact. Analysts on the earnings call focused on the scalability of Green Apron Service, the sustainability of labor investments, and the path back to pre-pandemic margins. Management reiterated that 2019 remains a “good guidepost” for long-term profitability and emphasized that innovation and operational discipline would be key drivers of recovery.

In sum, Starbucks’ Q3 results showed a business still under earnings pressure but making meaningful strides in execution. The North American business is stabilizing, China has turned positive for the first time in six quarters, and the Green Apron Service rollout represents a tangible catalyst heading into the all-important fall season. While near-term margins remain challenged, Niccol’s turnaround plan appears ahead of schedule, with clear operational and strategic milestones in place. For now, the stock remains a story-driven trade—but one increasingly backed by evidence of progress.