Starbucks Reports Mixed Q1, International Strength Offsets North American Margin Pressure
STARBUCKS CORP (NASDAQ:SBUX) reported financial results for its fiscal first quarter ended December 28, 2025, delivering a performance that was solid on the top line but disappointing on profitability. The coffee giant's revenue exceeded analyst expectations, yet earnings per share fell short, painting a picture of a company navigating a successful sales turnaround while grappling with significant cost pressures.
Revenue Tops Estimates, EPS Misses
For Q1 fiscal 2026, Starbucks posted consolidated net revenues of $9.92 billion, a 5.5% increase year-over-year. This figure surpassed the analyst consensus estimate of $9.87 billion. The revenue beat was driven by a global resurgence in customer traffic.
- Global comparable store sales increased 4%, a notable improvement from a 4% decline in the prior-year period.
- The growth was transaction-driven, with a 3% increase in comparable transactions globally, complemented by a 1% increase in average ticket.
- The company added 128 net new stores, ending the quarter with 41,118 locations worldwide.
However, the bottom-line story was less positive. Non-GAAP earnings per share (EPS) came in at $0.56, a 19% decline from the $0.69 reported in Q1 fiscal 2025. This result missed the analyst estimate of $0.60 per share. On a GAAP basis, EPS was $0.26, down 62% year-over-year, heavily impacted by a one-time tax expense related to the pending China joint venture.
Market Reaction: Cautious Optimism
The initial market reaction in pre-market trading suggests investors are weighing the strong sales momentum against the clear profit pressures. The stock was up approximately 8.7% in pre-market activity. This positive move indicates the market may be giving more weight to the accelerating sales growth—a key focus of CEO Brian Niccol's "Back to Starbucks" turnaround strategy—and viewing the margin contraction as a near-term investment phase. The stock had been relatively flat over the past month, gaining about 12.5%, suggesting some optimism was already priced in ahead of the report.
Segment Performance: A Tale of Two Stories
A deep dive into the segment results reveals a stark divergence between Starbucks' domestic and international operations.
- North America: Revenue grew 3% to $7.28 billion, driven by a 4% comp sales increase. However, operating income plummeted 27% to $867 million. The operating margin contracted sharply by 480 basis points to 11.9%. Management attributed this to "labor investments in support of ‘Back to Starbucks’ and inflationary pressures, largely driven by elevated coffee pricing and tariffs."
- International: This segment was the clear standout. Revenue jumped 10% to $2.06 billion, fueled by a 5% comp sales increase. China, a critical market, saw comp sales surge 7%. Importantly, International operating income grew 19% and the operating margin expanded by 100 basis points to 13.7%. This strength was partly aided by accounting changes related to the China joint venture.
- Channel Development: The packaged goods segment saw revenue grow 20%, though its operating margin contracted due to product mix and higher costs.
Strategic Developments and Outlook
The quarter was marked by a major strategic shift: the company has classified its retail operations in China as "held for sale" as it moves forward with a plan to form a joint venture where Boyu Capital will acquire a 60% stake. This transaction, expected to close in the spring, drove a significant one-time tax impact this quarter.
Looking ahead, Starbucks provided fiscal 2026 guidance that appears conservative relative to current analyst expectations for sales growth. The company expects:
- Global comparable store sales growth of 3% or greater.
- Non-GAAP EPS in the range of $2.15 to $2.40.
The midpoint of the EPS guidance range ($2.28) is below the current analyst estimate for the full year. For the upcoming Q2, analysts are estimating revenue of $9.21 billion and EPS of $0.43.
Conclusion
Starbucks' first quarter confirms that its strategic initiatives are successfully driving customers back to its stores, with revenue growth accelerating and beating expectations. However, the path to translating that top-line strength into bottom-line growth remains challenging, particularly in its core North American market where investments and inflation are compressing margins. The market's positive pre-market reaction suggests a vote of confidence in the sales turnaround taking hold. The key question for investors moving forward will be when the company's substantial investments begin to yield the promised sustainable profit growth.
For a detailed look at Starbucks' upcoming earnings estimates and historical performance, you can review the data here.
Disclaimer: This article is for informational purposes only and does not constitute investment advice, nor does it recommend buying or selling any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
