Starbucks stock falls as sales disappoint, turnaround pressures earnings

Starbucks on Tuesday reported weaker-than-expected earnings and another quarter of same-store sales declines, but the coffee giant said its turnaround strategy is showing early signs of success.

“Our financial results don’t yet reflect our progress, but we have real momentum with our ‘Back to Starbucks’ plan,” CEO Brian Niccol said in a video posted on the company’s website. “We’re testing and learning at speed and we’re seeing changes in our coffeehouses.”

Some of those tweaks include scaling back plans to automate more coffee-making and investing more in labor, which weighed on earnings during the quarter.

“At this stage in our turnaround, [earnings per share] shouldn’t be used as a measure of our success,” Niccol said on the company’s earnings call Tuesday.

But the company also faces external challenges that could hit earnings. Trade conflicts sparked by President Donald Trump’s new tariffs will likely affect coffee beans — and the consumers buying the drinks made with them. About 10% to 15% of Starbucks’ product and distribution costs come from green coffee, or raw, unroasted beans according to CFO Cathy Smith, who recently joined the company.

“We expect that the balance of this fiscal year will bring some challenges as we navigate a dynamic macroeconomic environment, including tariffs and volatile coffee prices,” the company said in a regulatory filing on Tuesday, adding that it is monitoring the situation and trying to mitigate the financial impact.

Shares of the company fell 6% in extended trading.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

• Earnings per share: 41 cents adjusted vs. 49 cents expected
• Revenue: $8.76 billion vs. $8.82 billion expected

Starbucks reported fiscal second-quarter net income attributable to the company of $384.2 million, or 34 cents per share, halved from $772.4 million, or 68 cents per share, a year earlier.

The company’s operating margin fell to 6.9% from 12.8% as Starbucks spent more to kick-start its comeback. Labor costs rose as it staffed its U.S. cafes with more baristas.

While Starbucks is spending more on labor, the company is cutting back on how much it is putting into equipment. It is no longer planning to deploy its Cold Pressed Cold Brew system, and the company has paused the rollout of equipment used to heat food, Niccol said.

“We believe this evolved, labor focused approach has more potential to improve throughput and connection while minimizing future capital expenditures on equipment,” he said.

Outside its home market, the company spent more on promotions to drive traffic to its stores.It also accrued restructuring costs for the steps it has taken to simplify its global corporate organization.

Excluding restructuring costs, the company earned 41 cents per share.

Net sales rose 2% to $8.76 billion, but Starbucks’ same-store sales fell for its fifth straight quarter. The company’s sales have slumped as consumers in the U.S. and China, its two largest markets, seek cheaper coffee options.

Under Niccol, who took the reins in September, the company has been trying to turn around its U.S. business by getting “back to Starbucks” and returning its focus to coffee and the customer experience.

While the early stages of the turnaround have not yielded improvements in its financial results, Niccol said the company’s new marketing is resonating with customers, and service speeds are improving. One of his goals for the company is to complete every order in four minutes or less.

Still, the company’s global same-store sales fell 1% in its second quarter, fueled by a 2% decline in transactions. In Starbucks’ home market, the traffic decline was even steeper.

U.S. locations saw transactions fall 4%, dragging its same-store sales down 2%. China’s same-store sales were flat for the quarter, as a lower average ticket offset transaction growth.

In October, the company suspended its forecast for fiscal 2025 as it unveiled the early stages of its turnaround strategy. The plan has included layoffs for its white-collar workers. In late February, Starbucks announced it would cut 1,100 corporate positions, plus several hundred unfilled roles, as part of the turnaround plan.

Looking ahead, Starbucks plans to improve its cafes with better seating and “premium touches” in the hopes of enticing customers to linger, according to Niccol. The company also plans to overhaul its innovation process and improve the customer experience by fixing staffing levels, standards and the algorithm that tells baristas what drinks to make.