Starbucks Corporation (SBUX) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates robust growth strategies, including a strong turnaround in North America, effective cost-saving measures, and promising pilot programs like the Green Apron Service model. Despite some unclear management responses, the overall sentiment is positive, with improvements in operating margins and significant growth potential in various platforms. The Q&A section supports this with insights into successful marketing and innovation efforts. Given these factors, the stock price is likely to experience a positive movement over the next two weeks.
Key Financial Performance
Global Revenue $9.9 billion, up 5% year-over-year, driven by 1% net new company-operated store growth and a 4% increase in global comparable store sales.
Global Comparable Store Sales 4% growth year-over-year, driven by strong performance across both North America and International segments.
Operating Margin 10.1%, a contraction of 180 basis points year-over-year, primarily due to investments in the Back to Starbucks plan and product and distribution cost inflation.
Earnings Per Share (EPS) $0.56, down 19% year-over-year, impacted by higher operating costs and tax rates.
North America Revenue $7.3 billion, up 3% year-over-year, with comparable store sales growing 4%.
North America Operating Margin Declined by approximately 420 basis points year-over-year, driven by investments in the Back to Starbucks plan and product and distribution cost inflation.
International Revenue $2.1 billion, up 10% year-over-year, with comparable store sales growing 5%.
China Comparable Store Sales 7% growth year-over-year, driven by a 5% increase in transactions, product innovation, and effective marketing.
Starbucks Rewards 90-day Active Members 35.5 million, up 3% year-over-year, marking an all-time high.
Channel Development Revenue Grew 19% year-over-year, driven by higher revenue from the Global Coffee Alliance and ready-to-drink business.
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Operating Highlights
Green Apron Service: Improved coffeehouse experience with better service standards, low partner turnover, and SmartQ algorithm. Resulted in increased customer satisfaction and reduced service times below 4 minutes.
Holiday Menu Innovation: New merchandise and menu items like the Barista Mug drove record revenue during the holiday launch week.
AI-Powered Green Dot Assist: Scaled across North American coffeehouses to provide real-time operational support and reduce friction for partners.
China Expansion: Comps grew 7%, marking the third consecutive quarter of growth. Partnership with Boyu Capital to expand into more cities and strengthen Starbucks' position in China.
India and Latin America Growth: India surpassed 500 coffeehouses, and expansion into six new cities in Latin America and the Caribbean was announced. Plans to exceed 1,000 coffeehouses in Mexico this year.
Supply Chain and Menu Optimization: Identified opportunities to strengthen supply chain and reevaluate menu offerings to ensure product availability and reduce waste.
Labor Model Refinement: Refining labor models based on store format and performance to improve operational efficiency.
Coffeehouse Uplift Program: Completed 200 uplifts in Southern California and New York City, with plans for 1,000 by the end of fiscal 2026.
Joint Venture in China: Boyu Capital to acquire up to 60% interest in Starbucks' retail operations in China, transitioning 8,011 company-operated coffeehouses to licensed stores.
Technology Leadership: Appointment of Anand Varadarajan as Chief Technology Officer to drive improvements across technology platforms.
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Risk or Challenges
Supply Chain: Legacy models and processes in the supply chain need fixing to ensure product availability and reduce waste. This indicates inefficiencies that could impact operations and profitability.
Labor Model: Opportunities to refine the labor model based on store format and performance. Inefficiencies in labor allocation could affect operational efficiency and customer experience.
Technology Integration: Need for better technology solutions in coffeehouses and support centers to enable efficiencies. Delays or failures in technology implementation could hinder operational improvements.
China Operations: Transition to a joint venture model in China introduces risks related to regulatory approvals, operational changes, and financial impacts from deconsolidation.
Cost Pressures: Product and distribution cost inflation, including tariffs and elevated coffee pricing, are impacting margins. These pressures are expected to persist in the near term.
Licensed Store Revenue: Decline in U.S. licensed store portfolio revenue, particularly in grocery and retail channels, could affect overall revenue growth.
Turnaround Plan Execution: The turnaround plan is still in early stages, and strategic investments will take time to yield sustainable earnings growth. Non-linear progress could pose challenges.
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Guidance & Outlook
Revenue Growth: Starbucks expects 3% or better global comparable sales growth for fiscal 2026, led by 3% or better comp sales in the U.S. Consolidated net revenues are expected to grow at a similar rate to global comp growth for the full fiscal year.
New Store Openings: The company plans to open approximately 600 to 650 net new coffeehouses in fiscal 2026, including 150 to 175 net new U.S. company-operated coffeehouses, a slight decrease in North America licensed coffeehouses, and 450 to 500 net new international coffeehouses, with China comprising close to half of the international openings.
Operating Margins: Consolidated operating margins are expected to grow slightly year-over-year, with improvements anticipated in the back half of fiscal 2026. Margin improvement will be driven by the anniversary of Green Apron Service investments, sales leverage from Back to Starbucks initiatives, and expected relief from coffee prices and tariff pressures in the latter half of the fiscal year.
Earnings Per Share (EPS): Starbucks projects EPS guidance of $2.15 to $2.40 for fiscal 2026, reflecting a measured approach with strategic investments in the first half and growth in the second half.
China Joint Venture Impact: The joint venture with Boyu Capital in China is expected to close in spring 2026. Upon closing, Starbucks China's retail operations will deconsolidate from the company's financials, converting 8,011 company-operated coffeehouses to licensed stores. The new structure is expected to be approximately 40 basis points accretive to consolidated margins on an annualized basis.
Capital Allocation: Proceeds from the China joint venture transaction are planned to be used for debt reduction, strengthening the balance sheet, and supporting long-term growth strategy execution.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What was the impact of the transfer of sales from closed stores on North America traffic performance?
A:The North American comp result was driven by transactions, with both non-rewards and rewards customers growing transactions. About 0.5 point of the comp was driven by sales transfer from closed stores. The strength was broad-based, with significant growth in morning transactions.
Q:How are the pilot stores with the Green Apron Service model performing?
A:The 650 pilot stores with the Green Apron Service model are outperforming the fleet by about 200 basis points in comp, driven by transactions. The model is resonating with customers and contributing to the brand's turnaround.
Q:What are the cost-saving opportunities and their timeline?
A:The company has a plan to track down about $2 billion in costs over the next two years, starting in 2025. This includes progress in G&A, procurement, and using technology to drive efficiency. The program is ongoing and involves multiple projects with clear deliverables.
Q:What factors could influence the earnings guidance for fiscal '26?
A:The higher end of the guidance depends on maintaining comp performance, supported by execution of the Green Apron Service model, marketing, and menu innovation. The guidance range reflects flexibility to adapt to various scenarios.
Q:What is driving the differential between non-rewards and rewards member growth?
A:Non-rewards customers had been declining but are now growing due to broad marketing and relevant innovation. Rewards membership surpassed 35 million, with growth driven by better engagement and personalization rather than discounting.
Q:What is Starbucks' approach to morning versus afternoon daypart execution?
A:The morning is seen as a ritual, while the afternoon is a reset. Starbucks plans to use digital menu boards to customize offerings for each daypart, focusing on energy drinks, sparkling beverages, and complementary food for the afternoon.
Q:How is Starbucks addressing competition in the drive-thru and takeout space?
A:Starbucks aims to leverage its ecosystem of cafe, drive-thru, and mobile order pickup to compete effectively. The company plans to expand this ecosystem with cost-effective buildings and excellent execution.
Q:What is the contribution of service, innovation, and marketing to same-store sales growth?
A:The strong operating foundation, including the Green Apron Service model, enhances the effectiveness of marketing and innovation. Customer feedback highlights improved service, relevant menu offerings, and a better overall experience.
Q:What is the plan for U.S. unit growth and its potential?
A:Starbucks has identified thousands of potential sites in the U.S. and plans to accelerate unit growth with new building designs and a focus on people capability. The company aims to double its long-term store count.
Q:How has the menu evolved under the turnaround efforts?
A:The menu has been reduced by about 25%-30%, focusing on platforms like health and wellness, afternoon beverages, and artisanal bakery items. The protein platform and personalized energy drinks are key areas of growth.
Q:What are the throughput initiatives and their progress?
A:Starbucks has improved throughput at peak times but sees opportunities to enhance performance throughout the day. The goal is to achieve consistent 4-minute service times across all transactions.
Q:What is the impact of the protein platform on sales?
A:The protein platform has shown strong trial and repeat rates, driving traffic and incremental sales. Awareness is still low, but the platform is gaining traction and contributing to comps.
Q:How has marketing influenced non-rewards customer growth?
A:Broad-based marketing has improved brand affinity and trust, leading to increased visitation across all age and income groups. The shift from discounts to effective marketing has been instrumental in the turnaround.
Q:What is the outlook for operating margin performance in fiscal '26?
A:Operating margin is expected to improve in the second half of the year as inflationary pressures abate, cost-saving initiatives take effect, and sales leverage increases.
Q:What is the potential of the health and wellness platform?
A:The health and wellness platform, including the protein lineup, is driving traffic and incremental sales. The platform is expected to grow as awareness increases and new products are introduced.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific contribution of service, innovation, and marketing to same-store sales growth, stating that it is hard to distill the impact of each factor. Additionally, while discussing the potential of the health and wellness platform, management did not provide specific numerical targets or detailed projections.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI knowledge
AI solution
Amazon President
America North
America coffeehouse
America roster
America whole
American AI
Anand
Apron Service
Brand affinity
Green Apron
Service standard
Technology
brand world
career
center world
city
coffeehouse experience
coffeehouse leader
coffeehouse program
coffeehouse support
comp market
customer connection
customer service
effort
line result
ownership
partner Starbucks
path
plan line
position
quarter transaction
support center
track
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vision
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The earnings call highlights strong financial performance with a 12% revenue increase, 10% global comparable sales growth, and improved operating margins. The EPS growth of 15% and significant operating cash flow increase further reinforce positive sentiment. However, the lack of strategic and operational updates and the absence of new guidance or partnership announcements temper the overall outlook slightly. The market is likely to react positively, but not overwhelmingly so, given the absence of additional catalysts or guidance changes.
Starbucks Corporation (SBUX) Q1 2026 Earnings Call Transcript
Positive1-28
The earnings call indicates robust growth strategies, including a strong turnaround in North America, effective cost-saving measures, and promising pilot programs like the Green Apron Service model. Despite some unclear management responses, the overall sentiment is positive, with improvements in operating margins and significant growth potential in various platforms. The Q&A section supports this with insights into successful marketing and innovation efforts. Given these factors, the stock price is likely to experience a positive movement over the next two weeks.
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Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
