Starbucks Aims to Revitalize with Improvement Plans

Overview

Starbucks (SBUX), the renowned coffeehouse chain, has unveiled its financial performance for Q1 2025. Amidst ongoing challenges, the company demonstrated resilience and exceeded market expectations.

Revenue and Earnings

Revenue remained steady at $9.4 billion, aligning with estimates. Earnings per share (EPS) amounted to $0.69, surpassing the anticipated $0.66 and representing a 23% decline year-over-year.

Same-Store Sales Performance

Global same-store sales witnessed a 4% decline, marking the fourth consecutive quarter of such a trend. This was accompanied by a 6% decrease in foot traffic. However, average ticket size experienced a 3% increase.

North American Market

North America and US same-store sales declined by 4%, with foot traffic falling by 8%. Nonetheless, an average ticket growth of 4% partially offset this decline.

Operational Adjustments

Starbucks has implemented strategic changes, including reducing promotions, leading to a 40% decrease in discounted transactions. The company plans to enhance marketing spend and reduce its beverage and food menu by 30% by the end of the fiscal year.

Operating Margin

Operating margin contracted due to investments in Niccol's turnaround strategy and the deleveraging impact of the ongoing transitions.

Cost and Efficiency

Despite rising coffee bean costs, their impact on Starbucks has remained minimal, with total green coffee costs typically accounting for 10-15% of product and distribution expenses.

Wall Street Expectations

Analysts anticipate continued negative same-store sales trends. However, they expect momentum to build in the latter part of 2025 and beyond.

Outlook

Starbucks acknowledges that its turnaround journey is in its early stages. The company opened 113 stores in North America and 264 stores internationally during the quarter. The evolving landscape of its Chinese business remains a focus for investors.

Management Changes

Starbucks has undergone management reorganizations, including the retirement of Starbucks China chair Belinda Wong and the elevation of Molly Liu to the position of Starbucks China CEO. The company has also introduced a Coffeehouse Code of Conduct and announced upcoming corporate layoffs to streamline operations.