Starbucks FY2025 Third Quarter Earnings Comments

Earnings Highlight

Revenue: Starbucks reported quarterly revenue of $9.5 billion, surpassing market expectations of $9.45 billion, with a year-over-year increase of 4.28%. This growth was primarily driven by new store openings, with a global net addition of 308 stores, bringing the total to 41,097. North America saw 3% growth, while international markets grew by 5%. Despite a 2% decline in global comparable store sales, new store contributions significantly boosted revenue.

Earnings Per Share (EPS): EPS was $0.50, falling short of the expected $0.69, down 46.24% year-over-year. This was primarily impacted by investments in the "Back to Starbucks" strategy and a one-time tax item that negatively affected EPS by $0.11. Additionally, cost deleveraging increased expenses.

Segment Performance:

Comparable Store Sales: Global comparable store sales declined by 2%, slightly below the expected -1.5%. This was driven by a 2% drop in comparable transactions, partially offset by a 1% increase in average ticket size, reflecting weaker consumer demand possibly due to economic pressures or intensified competition. Regionally, North America saw a 3% decline in transactions with a 1% increase in average ticket size; international markets remained flat, with a 1% increase in transactions offset by a 1% decrease in average ticket size. In China, transactions grew by 6%, but average ticket size fell by 4%, indicating greater price sensitivity.

Profit Margin: The operating margin was 10.1%, below the expected 11.6%, down 660 basis points year-over-year. This was due to reduced operating leverage, investments related to the "Back to Starbucks" plan (including additional labor costs and the 2025 leadership experience program), and inflationary pressures.

Global Store Count: The global store count reached 41,097, with a net increase of 308 stores, of which 53% are company-operated and 47% are licensed. This reflects a steady expansion strategy. Future store openings are expected to drive revenue growth, but ensuring new store profitability is key to avoiding negative impacts on existing store sales.

Future Outlook

Starbucks’ Q3 2025 earnings reflect a complex mix of revenue growth and profitability pressures. While no full-year 2025 guidance was provided, low single-digit revenue growth is expected, driven by new store expansion and international market potential, particularly in China. However, EPS is likely to remain under pressure in Q4 due to strategic investments. Management is optimistic about restoring the pre-pandemic 17% operating margin but expects 2025 margins to fall below historical levels due to rising coffee costs. Comparable store sales are expected to remain soft, with North America facing greater pressure, while China is likely to sustain growth, depending on economic improvements or promotional effectiveness.

China Market: China was a bright spot, achieving 2% comparable store sales growth despite the global 2% decline, with transactions up 6%, underscoring its role as a growth engine. China’s store count reached 22,363, up 5% year-over-year. Management indicated a potential sale of a portion of its China business to optimize capital structure and fund further expansion while continuing to grow its store footprint.

Long-Term Growth Initiatives: To drive long-term growth, Starbucks plans to launch innovative products in 2026, including protein cold foam, coconut water-based beverages, and a new Starbucks app to enhance customer experience and digital engagement. The company will also upgrade its Rewards loyalty program to boost customer retention. These initiatives are part of the "Back to Starbucks" plan, focusing on menu innovation and digital transformation. Despite potential Q4 profitability pressures, management emphasized a sustainable growth strategy, anticipating significant improvement in 2026 performance.

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