Starbucks Q1 Earnings Call Highlights

Key Points

• Starbucks delivered transaction-led Q1 results with global revenue up 5% to $9.9 billion, comps +4% and 128 net new stores, though EPS fell 19% to $0.56 and operating margin compressed to 10.1%.
• Management attributes momentum to its "Back to Starbucks" turnaround—especially the Green Apron service standard, marketing and store uplifts—and rising digital engagement (Starbucks Rewards reached 35.5 million active members) that boosted both Rewards and non‑Rewards transactions.
• Starbucks outlined a China joint venture with Boyu Capital (Boyu to acquire up to 60%), which will deconsolidate 8,011 stores on close, and gave FY26 targets of ≥3% global comps, ~600–650 net new stores, EPS $2.15–$2.40, while pursuing about $2 billion of cost savings and expecting margin improvement in the back half.

Starbucks NASDAQ: SBUX executives said the company began fiscal 2026 with accelerating comparable sales growth and improving transaction trends, citing early momentum from its “Back to Starbucks” turnaround plan and the rollout of its Green Apron service standard.

First-quarter results show transaction-led comp growth

In prepared remarks, Chairman and CEO Brian Niccol said Starbucks delivered “top-line growth driven by transactions” in the first fiscal quarter of 2026, adding that the company believes it has clear plans to translate that momentum into margin and earnings growth over time.

On a non-GAAP, constant-currency basis, Starbucks reported:

• Global revenue: up 5% to $9.9 billion
• Global comparable store sales: up 4%
• Net new stores: 128 globally
• Operating margin: 10.1%
• EPS: $0.56 (down 19% year over year, per CFO Cathy Smith)

In North America, revenue increased 3% to $7.3 billion and comparable store sales grew 4%. Niccol emphasized that U.S. company-operated transaction comps rose year over year for the first time in eight quarters, and that transactions increased across all dayparts.

During the Q&A, Niccol said about 0.5 percentage point of the North America comp result reflected a transfer of sales from stores closed in late September, but added that overall strength was “broad-based.” He also noted the company’s 650 Green Apron pilot stores continued to outperform the broader fleet by about 200 basis points in comp, largely driven by transactions.

Green Apron service, marketing, and store environment central to the turnaround

Management repeatedly tied first-quarter performance to improvements in the in-store experience. Niccol said Starbucks leveraged “bigger rosters,” new service standards, low hourly partner turnover, and a “Smart Queue” algorithm to deliver more consistent service. He said average cafe and drive-thru service times were below Starbucks’ four-minute targets during peak, even with “meaningful transaction growth,” and that the company improved the accuracy and timeliness of mobile orders.

Niccol also pointed to operational changes intended to increase leadership continuity, including new expectations that coffeehouse leaders stay in role at least three years, and the launch of the “Grow” performance reporting program. Starbucks also scaled “Green Dot Assist,” an AI-powered knowledge search tool for partners, across North American stores in November.

Marketing and menu innovation were another key theme. Niccol said Starbucks’ holiday offering—including new merchandise such as a Barista Mug—helped generate energy and drove a “record revenue holiday launch week” for the U.S. company-operated business. He also cited improvements in U.S. brand metrics, including visit consideration, first-choice ranking, and connection scores.

Management stressed that value perception held up in the quarter and that Starbucks is seeking to create value “not through discounts,” but through menu innovation and customer connection. In a later exchange, Smith said Starbucks has reallocated spending away from “less effective discounts” toward marketing, characterizing marketing as an “ongoing expense” embedded in guidance.

Niccol added that Starbucks is investing in its in-store environment through its Coffeehouse Uplift program. The company has completed about 200 uplifts so far—primarily in Southern California and New York City—and remains on track to complete more than 1,000 by the end of fiscal 2026.

Rewards and non-Rewards traffic trends improve

Starbucks said digital engagement improved, with Starbucks Rewards 90-day active members reaching a record 35.5 million in the quarter, up 3% year over year. Niccol said Rewards transactions grew year over year for the first time in eight quarters, while non-Rewards transactions grew even faster. He called it the first quarter since fiscal Q2 2022 that both Rewards and non-Rewards transactions grew.

When asked about the divergence between Rewards and non-Rewards trends, Niccol said the company aimed for broader marketing that appeals to both frequent and infrequent customers, alongside on-trend innovation. He also said Rewards growth is being driven by engagement and personalization “not through discounting and couponing,” and indicated investors will hear more about planned Rewards enhancements at the company’s Investor Day.

International growth led by China; Boyu joint venture outlined

International revenue rose 10% to $2.1 billion, with comparable sales up 5%. Niccol said comps grew in nine of the company’s 10 largest international markets, with strong performance in China, Japan, and the U.K.

China stood out again, with comparable store sales up 7% in the quarter and comparable transactions improving 5%, which management said was supported by product innovation, marketing, and delivery growth.

Smith provided detail on Starbucks’ announced plan to form a joint venture with Boyu Capital for China. Under the agreement, Boyu will acquire up to a 60% interest in Starbucks’ retail operations in China, while Starbucks retains 40% and continues to own and license the brand and intellectual property. Starbucks expects to close the transaction in spring 2026, subject to regulatory approvals.

Smith said Starbucks classified China retail assets and liabilities as held for sale in Q1, which required the company to stop certain depreciation and amortization, reducing expenses. She said that starting in December, Starbucks has been recording about $39 million less in monthly expenses than it otherwise would have recognized prior to the announcement, and that dynamic is expected to continue through closing.

Upon closing, Starbucks expects China retail operations to deconsolidate, converting 8,011 company-operated coffeehouses to licensed stores within the international segment. Starbucks will record its 40% share of income from the joint venture via the equity method, and will also receive revenues related to product sales and royalties, with the proportionate share of gross profit included in income from equity investees.

Margins pressured; fiscal 2026 outlook emphasizes comps, new stores, and back-half improvement

Smith said consolidated operating margin of 10.1% contracted 180 basis points year over year, driven primarily by North America margin compression of about 420 basis points. She attributed the decline mainly to the annualization of investments supporting the turnaround, with about one-third of North America’s contraction tied to product and distribution cost inflation, “led by tariffs and elevated coffee pricing.”

Looking ahead, Starbucks guided for fiscal 2026:

• Global comps: 3% or better (including 3% or better in the U.S.)
• Net new stores: about 600–650 (including 150–175 net new U.S. company-operated stores, a slight decrease in North America licensed stores, and 450–500 net new international stores, with China close to half)
• Net revenue growth: similar to global comp growth, as portfolio repositioning offsets new store openings
• Operating margin: expected to grow slightly year over year, with improvement weighted to the back half
• EPS: $2.15–$2.40

Smith said margin improvement expectations reflect anniversarying Green Apron investments in Q4, sales leverage as initiatives and supply chain improvements progress, and an expectation that coffee prices and tariff pressures peak in Q2 and ease in the back half. She added that G&A dollars are expected to run below fiscal 2023 levels following last year’s structural reorganization.

Management also discussed a cost program, with Niccol saying Starbucks has identified a plan to “track down about $2 billion of costs” over the next couple of years, spanning G&A, procurement, and technology-driven efficiencies.

Regarding the China joint venture, Smith said Starbucks’ fiscal 2026 guidance assumes “business as usual” China operations in the second half. She said that if the joint venture structure were assumed in the second half, Starbucks would expect slightly lower consolidated revenues and comps but slightly better consolidated operating margins, and that on an annualized basis the new structure could be approximately 40 basis points accretive to consolidated margins. She also said the transaction is expected to have a $0.02–$0.03 dilutive effect relative to current EPS guidance, and that proceeds are currently planned for debt reduction and balance sheet strengthening.

About Starbucks NASDAQ: SBUX

Starbucks Corporation is a global coffeehouse chain and roaster that operates, licenses and franchises coffee shops and related retail businesses. Founded in Seattle, Washington in 1971 by Jerry Baldwin, Zev Siegl and Gordon Bowker, the company grew from a single store focused on whole-bean coffee and equipment into a broad consumer-facing brand. Howard Schultz, who joined the company later and served in senior leadership roles, is widely credited with transforming Starbucks into a mass-market specialty coffee retailer and expanding its footprint internationally.

Starbucks' core activities center on the retail sale of hot and cold specialty beverages, whole-bean and packaged coffees, teas and ready-to-drink products, along with complementary food items and merchandise such as mugs and brewing equipment.

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