Starbucks Rallies on Transactions, Despite Slipping Margins

Date of Call: Jan 28, 2026

Financials Results

• Revenue: $9.9 billion, up 5% YOY
• EPS: $0.56 per diluted share, down 19% YOY
• Operating Margin: 10.1%, contracting 180 basis points YOY

Guidance:

• Global comp sales growth of 3% or better for fiscal 2026, led by the US.
• Consolidated net revenues expected to grow at a similar rate to global comp growth.
• Consolidated operating margins expected to grow slightly YOY, driven by improvements in the back half.
• Fiscal 2026 EPS guidance of $2.15-$2.40.
• Approximately 600-650 net new coffeehouses planned for fiscal 2026.

Business Commentary:

Revenue and Comparable Store Sales Growth:

• Starbucks reported global revenue of $9.9 billion for Q1 fiscal 2026, up 5% year-over-year, with global comparable store sales growing by 4%.
• The growth was driven by an increase in transactions, particularly in the U.S. where company-operated transaction comps grew for the first time in eight quarters.

North America Performance and Green Apron Service:

• North America revenue grew by 3% to $7.3 billion, with comparable store sales increasing by 4%, led by 3 percentage points of transaction growth.
• The improvement was attributed to the Green Apron Service standard, which enhanced customer service and throughput, leading to an increase in transactions across all day parts.

International Segment and China Market:

• The international segment reported 10% revenue growth to $2.1 billion, with notable performance in China, where comparable store sales grew by 7%.
• This growth was driven by product innovation, effective marketing, and increased delivery services, alongside a strategic partnership with Boyu Capital to expand in China.

Cost Reduction Initiatives:

• Starbucks identified a plan to reduce $2 billion in costs over the next two years through various initiatives, including improvements in procurement, technology use, and labor models.
• The company emphasized that these efforts are part of a continuous program to enhance efficiency and support sustainable growth.

Marketing and Menu Innovation Impact:

• Starbucks saw a significant increase in brand affinity and customer connection scores, driven by a revamped marketing strategy and on-trend menu innovations like the protein beverage line.
• These efforts contributed to stronger customer engagement and transaction growth, especially among non-rewards customers.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed confidence that the 'Back to Starbucks' plan is working, with top-line growth driven by transactions. They noted momentum in comps, strong performance in key markets like China, and excitement about future growth initiatives. Quotes include: 'I am delighted to say we are now achieving top-line growth' and 'The shine is back on our brand.'

Q&A:

• Question from David Tarantino (Baird): Concerns about North America traffic performance, including benefit from sales transfers and underlying improvement, and early stores with the Green Apron service model.
  Response: North America comp growth driven by transactions, with both rewards and non-rewards customers increasing; about 0.5 point driven by sales transfer. Early Green Apron pilot stores outperform the fleet by ~200 bps in comp, primarily from transaction growth.

• Question from Brian Harbour (Morgan Stanley): Inquiries about additional cost opportunities and timing.
  Response: Management has a clear plan to identify and deliver about $2 billion in cost savings over the next two years through various projects across the P&L, not just one initiative.

• Question from David Palmer (Evercore ISI): Questions about fiscal 2026 earnings guidance and scenarios for the high and low ends.
  Response: The high end of EPS guidance depends on maintaining comp sales performance, driven by continued execution on Green Apron service, marketing, and menu innovation.

• Question from Lauren Silverman (Deutsche Bank): Asks about differential between non-rewards and rewards member growth and opportunities to narrow the gap.
  Response: Non-rewards customer growth is driven by broad marketing and on-trend innovation to make the brand relevant. Rewards growth is from better engagement, not discounting. Future focus is on making the rewards program feel more personalized to drive performance.

• Question from John Ivankoe (JPMorgan Chase): Asks about daypart execution (AM vs PM) and competition from drive-through/takeout-focused chains.
  Response: Opportunity to further unlock the afternoon day part with customized energy, sparkling, and indulgent beverages. The drive-through, mobile order pickup, and cafe ecosystem together provide unmatched competition.

• Question from Sarah Senatore (Bank of America): Asks to disaggregate comp drivers (service vs innovation vs marketing) and if guidance includes flexibility for additional investments.
  Response: Service improvements (Green Apron) and marketing/innovation are working in harmony to drive transaction growth. Guidance includes flexibility to support the business, investing in what matters most, not just cost cutting.

• Question from Jeffrey Bernstein (Barclays): Asks about the rate of re-acceleration in the US and long-term store count opportunity.
  Response: No barrier on unit growth; thousands of sites identified. New building designs (Ristretto) and people capabilities (coaches) are in place to support disciplined expansion.

• Question from Gregory Francfort (Guggenheim Partners): Asks about menu simplification and platform opportunities.
  Response: Menu reduced by ~25-30%. Focus on platforms: health/wellness (protein), afternoon beverages/food, and artisanal bakery to drive innovation.

• Question from Peter Saleh (BTIG): Asks about throughput performance and opportunities for improvement.
  Response: Progress on peak throughput, but still opportunity to get all transactions under four minutes. Continued focus on labor model and metrics to drive performance.

• Question from Zach Fadem (Wells Fargo): Asks about operating margin performance and inflation pressures through the year.
  Response: Margin improvement expected in H2 as Green Apron investments anniversary, cost savings take effect, and coffee/tariff pressures abate.

• Question from Danilo Gargiulo (Bernstein): Asks about contribution of health/wellness platform (protein beverages) to comps and expectations.
  Response: Protein platform launched in Q1, showed nice recommitment in Q2. It's a traffic driver, highly incremental, with strong repeat rates and popularity in Cold Foam offerings.

• Question from Chris O’Cull (Stifel): Asks about marketing's role in turning non-reward customer tide and modeling marketing spend as a permanent rebase.
  Response: Marketing has improved brand affinity and visitation across cohorts. Investment is ongoing and reallocated from less effective discounts; included in guidance as a permanent expense.

Contradiction Point 1

Future Green Apron Service Investment and Cost Annualization

Contradiction on whether initial Green Apron costs have fully annualized and if further major investments are planned.

Can you outline additional cost opportunities and their expected timing? - Brian Harbour (Morgan Stanley)

2026Q1: The $2 billion savings program is ongoing. - Cathy Smith(CFO)

Are staffing investments for Green Apron Service fully implemented, what are the incremental investment requirements for enhancing the service, and how will product costs balance targeted savings with commodity inflation in 2026? - Brian Harbour (Morgan Stanley)

2025Q4: Initial investments are complete, and future investments will be earned through growth, not additional capital. There are no plans for further major investments in the standard. - Brian Niccol(CEO)

Contradiction Point 2

Nature of Marketing Spend Investment

Contradiction on whether increased marketing spend is a permanent expense or a temporary turnaround cost.

How much of the 420 bps North America margin contraction is due to increased marketing spend classified as a permanent rebase versus temporary turnaround costs? - Chris O’Cull (Stifel)

2026Q1: This marketing investment is considered an ongoing, permanent expense and is included in the FY2026 guidance. - Cathy Smith(CFO)

Are staffing investments for Green Apron Service fully implemented, what are the incremental investment implications for enhancing the service, and how do targeted product cost savings balance with commodity inflation in 2026? - Brian Harbour (Morgan Stanley)

2025Q4: Green Apron Service costs will annualize in early fiscal 2026, with assistant store managers (ASMs) rolling out later. - Catherine Smith(CFO)

Contradiction Point 3

Primary Driver of Transaction Growth

Inconsistent attribution for transaction improvement between operational/service changes and marketing.

What impact did transferring sales from stores closed in late September have on North America traffic performance, and what were the underlying business improvements? - David Tarantino (Baird)

2026Q1: The North America comp growth was driven by transactions, with both rewards and non-rewards customers increasing their visits. - Brian Niccol(CEO)

What factors drove the sequential transaction improvement despite early-stage operational changes, and can food innovation lessons from Canada's success be applied to the U.S.? - Sara Harkavy Senatore (BofA Securities)

2025Q3: Marketing is also having a positive effect, seen in increased nondiscounted rewards transactions and year-over-year growth in non-Rewards customer transactions. - Brian Niccol(CEO)

Contradiction Point 4

North America Store Growth Strategy and Timing

Conflicting signals on the pace and readiness to expand U.S. store footprint.

What is the strategy for re-accelerating U.S. unit growth, and what factors support confidence in doubling store counts long-term? Can you discuss the cost versus return analysis? - Jeffrey Bernstein (Barclays)

2026Q1: There are thousands of identified sites for new stores in the U.S. and internationally, with no barrier to unit growth. The focus is on building the right units and having the people to open them successfully. - Brian Niccol(CEO)

How is the store portfolio being evaluated, and will unit growth slow near-term before accelerating? - David Tarantino (Baird)

2025Q2: This review is leading to a decision to slow down new store openings temporarily while refining the design and cost structure. - Brian Niccol(CEO)