Starbucks reported weaker-than-expected earnings for the fiscal second quarter, alongside a continued decline in same-store sales. Despite the disappointing results, CEO Brian Niccol expressed optimism, citing early progress under the company’s “Back to Starbucks” turnaround plan. He emphasized that current financial figures do not yet capture the momentum Starbucks is building, as it prioritizes in-store experience and operational improvements.
The company has adjusted its strategy by scaling back automation plans and increasing investments in labor, which has contributed to a drop in earnings. Labor costs rose as Starbucks added more baristas to improve service in U.S. cafes, impacting profitability. As a result, net income fell sharply to $384.2 million, or 34 cents per share, from $772.4 million, or 68 cents per share, a year earlier. Adjusted earnings per share came in at 41 cents, below analysts’ expectations of 49 cents.
Revenue also missed projections, reaching $8.76 billion compared to the expected $8.82 billion. Operating margin dropped to 6.9% from 12.8%, reflecting increased costs tied to the company’s strategic shift. Alongside higher labor expenses, Starbucks paused its plans to roll out new food-heating equipment and abandoned the deployment of its Cold Pressed Cold Brew system, aiming to reduce capital expenditures.
Internationally, the company spent more on promotions to drive foot traffic and incurred restructuring costs as it simplified its global corporate structure. These changes included the elimination of 1,100 corporate roles in February and a suspension of its fiscal 2025 forecast.
Starbucks continues to face headwinds such as volatile coffee prices and the impact of new tariffs, which could increase product and distribution costs. Raw green coffee accounts for 10% to 15% of those costs, adding to financial pressure.
Same-store sales declined for the fifth consecutive quarter, with a global drop of 1% due to a 2% decline in transactions. In the U.S., transactions fell 4%, dragging same-store sales down 2%, while in China, growth in transactions was offset by lower average spending.
Looking forward, Starbucks aims to enhance customer experience by improving seating, staffing, and operational efficiency, including a goal to complete every order within four minutes.
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