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    SBUX
    Earnings call· Mar 2025(Q2 FY25)

    STARBUCKS CORP SBUX

    Apr 29, 2025 Source

    Executive summary

    Starbucks Q2 FY25 — Turnaround Strategy Shows Early Progress Amid Disappointing Financials

    Starbucks' Q2 FY25 results were financially disappointing, marked by declining comparable sales and EPS, yet management expressed confidence in its 'Back to Starbucks' turnaround strategy. Early indicators of recovery, particularly in North America and China, are attributed to strategic labor investments, operational improvements, and a renewed focus on customer experience and brand. The company is re-evaluating its store portfolio and CapEx strategy, prioritizing labor-focused throughput over equipment, while navigating dynamic tariff and coffee price environments.

    Highlights

    9

    • Total company revenue was $8.8 billion, up 3% in constant currency.

    • Global net new store growth of 213 coffee houses.

    • U.S. transaction decline improved to negative 4%.

    • Canada experienced both positive comparable store sales and transaction comp in the quarter.

    • China's comparable store sales were flat for the quarter with positive transactions and expanding margins.

    • 8 of our top 10 international markets returned to flat comp or comp growth.

    • Partner turnover dropped to under 50%, a new recorded low.

    • Brand first choice ranking is the highest it's been in 2 years.

    • Matcha sales lifted by nearly 40% versus last year after sugar removal.

    Concerns

    5

    • Global comparable store sales declined 1%.

    • Global operating margin was 8.2%, contracting 450 basis points from the prior year.

    • Overall earnings per share was $0.41, down 38% from the prior year.

    • Investments in labor drove margin compression in the quarter.

    • Choppiness in Starbucks Rewards member traffic due to reduced discounting.

    Guidance & targets

    4
    CategoryTargetConfidence
    Pricing
    No price increases
    high materiality
    High
    Top Line Performance
    Follow normal seasonality
    medium materiality
    Medium
    Restructuring Initiatives
    Completed within a finite period of time
    low materiality
    High
    Credit Rating Target
    BBB+ Baa1
    medium materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Global
    Total company revenue in constant currency, primarily driven by net new store growth, partially offset by comparable store sales decline.
    Comparable store sales decline: 1%Operating margin contraction: 450 bps
    		$8.8B3%—8.2%
    U.S.
    Comparable store sales decline primarily due to transaction decline, partially offset by ticket growth. Transaction recovery strongest in morning daypart.
    Comparable store sales decline: 2%Transaction decline: 4% (improved)Ticket growth: 3%
    		————
    Canada
    Benefited from food innovation resonating with customers.
    Positive comparable store salesPositive transaction compFood sales growth: 12.5%
    		————
    China
    Driven by focus on product innovation and improving value perception. Customer and partner engagement scores improved year-over-year.
    Comparable store sales: flatPositive transactions
    		———Expanding margins
    International
    Seeing faster improvement, with cafes starting their 'Back to Starbucks' plan from a more consistent brand experience.
    8 of top 10 markets with flat or positive comps
    		————
    U.K.
    Positive feedback on fresh baked launch.
    Positive compsGaining market share
    		————
    Middle East
    Regional business partner returned to positive transaction comps for the quarter.
    Returned to positive transaction comps
    		————
    Japan
    Focus on the coffee house experience driving growth.
    16th consecutive quarter of comp growthIncreased brewed coffee and espresso comps
    		————

    Operational metrics

    23
    Total Company Revenue
    $8.8B+3% constant currency
    Q2 FY25

    Reported revenue for the second fiscal quarter.

    Operating Margin
    8.2%-450 bps YoY
    Q2 FY25

    Consolidated operating margin, primarily driven by deleverage and additional labor investments.

    EPS
    $0.41-38% YoY
    Q2 FY25

    Earnings per share, reflecting the impact of expense deleverage and heightened store investments.

    Net New Stores
    213
    Q2 FY25

    Number of net new stores opened globally.

    Net New Company-Operated Store Growth
    7%
    last 12 months

    Growth rate of company-operated stores over the past year.

    G&A
    -3%YoY
    Q2 FY25

    Decline in General & Administrative expenses, driven by lapping prior costs and corporate restructuring savings.

    Partner Turnover
    under 50%new recorded low
    Q2 FY25

    Turnover rate for partners, indicating improved engagement.

    Brand First Choice Ranking
    highest since 2023
    Q2 FY25

    Percentage of customers ranking Starbucks as their first choice, based on brand tracker data.

    TikTok Engagement
    nearly 3xQoQ
    Q2 FY25

    Increase in engagement on TikTok due to a new fan-focused approach.

    Matcha Sales Growth
    +40%vs last year
    Q2 FY25

    Increase in Matcha sales after sugar was removed from the product.

    Clover Vertica Brewers Installation
    70%
    Q2 FY25

    Percentage of U.S. company-operated coffee houses with Clover Vertica brewers installed.

    Digital Menu Boards Installation
    >25%
    Q2 FY25

    Percentage of U.S. company-operated coffee houses with digital menu boards installed.

    Cafe Wait Times Reduction (Pilot)
    2 minutes
    Q2 FY25

    Average reduction in cafe wait times in test locations using new order sequencing algorithm.

    Cafe Orders Under 4 Minutes at Peak (Pilot)
    75%
    Q2 FY25

    Percentage of cafe order wait times under 4 minutes at peak in test locations.

    Drive-thru Speed (Pilot)
    <4 minutes
    Q2 FY25

    Average drive-thru service times in test locations, exceeding the 4-minute goal.

    Stores with Positive Transaction Comp
    almost 25%up from 13.5%
    Q2 FY25

    Percentage of stores achieving positive transaction comparable sales, showing progress from the labor pilot.

    Stores with Positive Sales Comp
    42%
    Q2 FY25

    Percentage of stores achieving positive sales comparable sales.

    Morning Daypart Positive Sales Comp
    almost 50%
    Q2 FY25

    Percentage of stores with positive sales comparable sales in the morning daypart.

    Green Coffee Cost as % of Product and Distribution Costs
    10-15%
    null

    Typical range for green coffee costs relative to total product and distribution costs.

    Restructuring Charges
    —
    Q2 FY25

    Corporate restructuring charges were excluded from non-GAAP results, with potential for additional charges in the near term.

    Green Apron Service Model Rollout
    2,000+
    by May

    Scaling of the new service model combining new standards, partner plays, streamlined routines, and order sequencing algorithm.

    New Store Build Cost Reduction
    —
    Future

    Working to reset renovation and new build costs to improve unit economics and support long-term store growth.

    Zero-Based Budgeting
    —
    Next fiscal year

    Tool to be deployed to identify and eliminate stranded costs, supporting durable growth and return on invested capital.

    Industry KPIs

    2
    MetricValueDetails
    Comparable sales comps-1%%
    Net unit growth development pipeline213units

    Product announcements

    12
    ProductTypeDetails
    U.S. Brand Campaignlaunch
    Matcha (sugar removed)update
    Cortado platformlaunch
    Summer berry refreshers with Pearlsupdate
    Iced Horchata oat milkshake and Espressolaunch
    Frappuccino innovationlaunch
    Health and wellness platformroadmap
    Aperitivo menuroadmap
    Limited time flavor launchesroadmap
    Siren cold and food equipmentdiscontinuation
    Cold pressed, cold brew equipmentdiscontinuation
    Starbucks app updateupdate

    Deals & partnerships

    1
    PepsiCoCollaboration for new beverage lines

    Delivered relevant innovation to customers at home and on the move, including a new line of Iced Energy and Frappuccino Light beverages in partnership with PepsiCo.

    Risks & headwinds

    6
    Disappointing Q2 Financial ResultsQ2 FY25

    Global comparable store sales down 1%, global operating margin down 450 bps, EPS down 38%.

    Mitigation: 'Back to Starbucks' strategy, focus on customer, partner experience, cost management.

    Uncertain Consumer EnvironmentMonths to come

    We don't know what the state of the consumer will be in the months to come.

    Mitigation: Building a globally resilient business rooted in brand strength, customer focus, and local partners.

    Turnaround TimeframeOngoing

    The turnaround is going to take some time.

    Mitigation: Disciplined investments, focus on leading indicators, test, learn, iterate, and scale quickly.

    Dynamic Tariff EnvironmentOngoing

    Tariff environment continues to be dynamic. Largest exposure in merchandise from China and imported beverage components.

    Mitigation: Mobilized cross-functional team, actively managing and mitigating risks, strengthening supply chain, localizing/moving production, shifting production to alternate sites for holiday season.

    Coffee Price VolatilityOngoing

    Coffee market continues to be volatile.

    Mitigation: Leveraging global footprint, diversifying/redirecting coffee shipments, opportunistic purchasing and hedging practices. Coffee costs are 10-15% of product/distribution costs.

    Starbucks Rewards Discounting ImpactQ2 FY25

    Choppiness in Starbucks Rewards member traffic due to reduced discounting.

    Mitigation: Evolving the rewards program to focus on experience-based, coffee quality-based transactions rather than couponing.

    What to watch in Q3 FY25

    5

    Green Apron Service Model Rollout

    Next quarter (May rollout), end of FY (full rollout)
    CurrentScaled to 400+ stores (order sequencing pilot), 1,500-2,000 stores by May (labor program).
    TargetOver 2,000 U.S. company-operated locations by May, over 1/3 of U.S. coffee houses by end of FY.

    Why it matters

    This model combines new service standards, partner plays, streamlined routines, and order sequencing to improve peak throughput, customer experience, and accelerate transaction growth.

    Beginning in May, we'll scale a new Green Apron service model to more than 2,000 of our U.S. company-operated locations and to more than 1/3 of our U.S. coffee houses by the end of this fiscal year.

    Q&A highlights

    6

    Are investments shifting to more OpEx (labor) and less CapEx (equipment) for speed and throughput, and will this accelerate improvement?

    Brian Niccol confirmed the shift, stating that staffing, deployment, and technology are more effective than equipment for customer experience and throughput. Pilot programs are scaling rapidly, with transactions responding positively. He noted the focus on finding material offsets for labor investments.

    “what we've learned over the last couple of months, specifically behind both the algorithm pilot and the labor pilot is the combination of staffing, deployment and technology gives us the outcomes of a great customer connection experience as well as the right speed and throughput associated with what we want to achieve.”

    asked by David Palmer · answered by Brian Niccol

    2 min read5 chapters

    Detailed Narrative

    01

    Back to Starbucks Strategy Progress

    The 'Back to Starbucks' plan, initiated seven months ago, is showing tangible progress and positive signs. The strategy focuses on a customer-driven culture, empowering Green Apron partners, reestablishing coffee houses as a 'third place,' and building a globally resilient business. Early indicators include improved partner engagement, record-low turnover, slowing transaction declines, and an improved customer experience in North America, with Canada returning to positive comps.

    02

    Operational Enhancements and Labor Focus

    Starbucks is shifting its operational focus from CapEx-heavy equipment to strategic labor investments and technology to improve throughput and customer connection. Pilot programs for staffing, deployment, and a new order sequencing algorithm have demonstrated success, reducing cafe wait times by an average of two minutes and bringing 75% of peak cafe orders under four minutes. This new 'Green Apron service model' will scale to over 2,000 U.S. company-operated locations by May and over one-third of U.S. coffee houses by the end of the fiscal year.

    03

    Store Portfolio and Development Re-evaluation

    The company is critically evaluating its current store portfolio and new store pipeline to ensure every coffee house provides a great customer experience and delivers improved unit economics. The objective is to reduce new store build and renovation costs, with a long-term potential to double the U.S. footprint with optimized designs and cost structures. Consequently, the continued rollout of CapEx-heavy Siren cold and food equipment has been paused, and deployment of cold pressed, cold brew equipment will not proceed.

    04

    Brand Reintroduction and Menu Innovation

    A new U.S. brand campaign and a fan-focused social media approach have driven record customer engagement and improved brand perception, with Starbucks ranking as the first choice for customers at its highest in two years. Menu rationalization has created space for relevant innovation, including the successful Cortado platform and a 40% increase in Matcha sales after sugar removal. Future innovation includes exploring artisanal food, a health and wellness platform, and an Aperitivo menu for afternoon dayparts.

    05

    International Market Performance and China Commitment

    Eight of the top ten international markets achieved flat or positive comparable store sales, indicating faster improvement. The U.K. saw positive comps and market share gains, while the Middle East returned to positive transaction comps. China's comparable store sales were flat with positive transactions and expanding margins, driven by product innovation and value perception improvements. Management reiterated its long-term commitment to the China market, seeing great potential for future growth.

    AI-generated summary of the company’s earnings call. Not investment advice.