Back on the grind

Starbucks spilled the beans, and they finally tasted good.

The coffee goliath reported fiscal first-quarter earnings yesterday, serving a mixed cup. Revenue topped expectations, but profits came in light.

Still, investors zeroed in on a long-awaited bright spot: customer traffic. Transactions rose 3%, the first increase in two years, helping US same-store sales climb 4%. That marked a sharp reversal from the same quarter last year, when comparable sales fell 4%.

Behind the counter

The results reflect a company deep into a reset under CEO Brian Niccol, who took the helm in 2024. His “back to Starbucks” strategy centers on restoring the in-store experience, shifting focus away from mobile orders, automation, and efficiency.

Management has leaned into a “retail is detail” mindset, prioritizing human touches and store culture, with changes ranging from added barista staffing and redesigned cafes, to small, symbolic touches like handwritten cup messages and tighter restroom access.

That approach, however, comes with a price tag. Higher labor costs and reinvestment in stores weighed on profitability, contributing to the earnings miss. North American operating margins fell to 11.9%, down from 16.7% a year earlier. External pressures, including higher input costs tied to tariffs, have added another layer of strain.

The turnaround comes as competition gets tougher. In China, Luckin Coffee has overtaken the Seattle-based chain, with Starbucks’ Chinese market share falling from 40% in 2017 to 14% last year. Luckin’s US entry, the growth of domestic rivals like Dutch Bros, and better at-home coffee options are adding pressure.

Even so, Starbucks’ brand remains a powerful asset. “One in three consumers say that Starbucks is their first choice for coffee or tea away from home,” Chief Brand Officer Tressie Lieberman said at the company’s investor presentation today.

Just getting started

“In fiscal 2026, we’re going to be shifting to play offense and to innovate,” Niccol said during the presentation.

For the fiscal year ending September 2026, Starbucks is targeting at least 3% same-store sales growth and plans to open 600 to 650 new stores globally, including 150 to 175 in the US.

Looking further ahead, the company expects to deliver at least 3% comparable sales growth by fiscal 2028, revenue growth of 5% or more, and earnings per share between $3.35 and $4, signaling confidence the turnaround can gain momentum.

The comeback is still brewing, but investors finally have something concrete to watch.—SY

Today, armed with caffeine, I went to the Starbucks investor day event in Manhattan, where the company unveiled its future look and feel. Gleaming Milan-inspired Mastrena machines showed that faster espresso can still look beautiful, alongside “smart” point-of-sale systems that predict orders and AI tablets guiding in-store staff.

The push for a more elevated experience is driven by the fact that 60% of customers still walk into Starbucks stores, excluding mobile order and pickup. Starbucks wants them coming back more often, especially with 60% of 2025 revenue tied to Rewards members, with new loyalty tiers launching in March.

The presentations sounded great, but as the morning went on, I watched the share price tick lower.

Tune in to today’s episode of Brew Markets to learn why the market remains skeptical.—AB