January 28, 2025
Starbucks ( SBUX ) is striving to brew up a comeback.
The Seattle-based coffee giant posted its first quarter fiscal year 2025 results on Tuesday after market close, which showed declines across the board but beat Wall Street's expectations.
This was the first full quarter under CEO Brian Niccol, who took the helm on Sept. 9.
"The first quarter in 2025 results met our expectations, clearly show[ed] some signs of progress ... we still have much work to do," Niccol told investors on an earnings call, with a positive response across all ages so far in its "Back to Starbucks" plan, which calls for a focus on core coffee products, better pricing, and faster service.
Revenue was flat year over year at $9.4 billion, versus estimates of $9.32 billion. Earnings per share of $0.69 were a 23% drop compared to the same quarter a year ago, but higher than the $0.66 expected. The company alluded to "heightened investments" for Niccol's turnaround plan as part of the reason for the earnings decline.
Global same-store sales and foot traffic declined 4% and 6%, respectively, the fourth straight quarter of such decline. The average ticket size grew 3%.
North America and US same-store sales fell 4% year over year, while foot traffic dropped 8%, partially offset by a 4% jump in average ticket.
In the quarter, Starbucks pulled back on promotions, leading to 40% fewer discounted transactions year over year. CFO Rachel Ruggeri said on the earnings call that it's doubling marketing spend as a percentage of revenue, offsetting savings from running fewer promos.
Starbucks plans to reduce beverage and food offerings on the menu by 30% by the end of this fiscal year. The company recently canceled the extra charge on non-dairy milks and paused price increases. Soon, it plans to launch a pilot program in 700 stores to improve staffing levels.
Operating margin contracted by 390 basis points in the quarter, partially driven by "deleverage and investments" in Niccol's strategy, per Starbucks. Improving mobile orders is next on the to-do list for Niccol.
Despite soaring coffee bean costs ( KC=F ), the impact on Starbucks has been minimal, per Ruggeri. Its total cost of green coffee is typically limited to 10% to 15% of its product and distribution costs.
In the past year, Starbucks stock has gained 5%, far lagging the S&P 500's ( ^GSPC ) 24% rise. But the shares have risen 32% in the past six months after Niccol was announced as the new CEO in August.
Here are the results for the first quarter of fiscal 2025, compared to what Wall Street expected, per Bloomberg consensus estimates:
"We're still [in the] very, very early ... innings of this turnaround story," BTIG analyst Peter Saleh told Yahoo Finance. "You're going to start to see more momentum ... as we get into the back end of this year and then into fiscal 2026" when it comes to same-store sales growth, margins, and earnings, he said.
In the quarter, the company opened 113 stores in North America and 264 stores internationally.
The ongoing saga of its Chinese business is another point of focus for investors. The US and China make up 61% of the company's portfolio, with 17,049 and 7,685 stores in the two countries, respectively.
Starbucks has struggled with sales in China amid a stagnant domestic economy and fierce local competition. Niccol said he visited the market just last week and saw firsthand "how dynamic the market is and the opportunities ahead."
He added that the team is "processing these learnings and we will share more."
Earlier this month, Starbucks China chair Belinda Wong retired. Molly Liu, who served as co-CEO with Wong, will lead the business with the title of Starbucks China CEO.
The company has been undergoing a number of changes.
Earlier this month, Starbucks announced the implementation of a Coffeehouse Code of Conduct , where only paying customers can sit in-store and use the restroom. It also said corporate layoffs to "operate more efficiently" will be announced by early March.
There are also other shakeups among the management ranks as longtime executives depart and teams are reorganized.
—
BrookeDiPalma
