VALUATION HIGHLIGHTS

1. Company Operated Stores constitute 58% of the Trefis price estimate for Starbucks's stock.
2. Licensed Stores constitute 32% of the Trefis price estimate for Starbucks's stock.
3. CPG, Food Service & Other constitutes 10% of the Trefis price estimate for Starbucks's stock.

WHAT HAS CHANGED?

Starbucks Q4 Snapshot

Starbucks’ Q4 fiscal 2025 earnings delivered a mixed picture, with revenue of about $9.6 billion rising 5% year-over-year and modestly beating expectations, while adjusted EPS of roughly $0.52 came in slightly below consensus as margins remained under pressure. Global comparable sales turned positive at +1% for the first time in several quarters, supported by international comps around +3%, while the U.S. was broadly flat, highlighting early but uneven traction from the company’s turnaround initiatives. Management noted that higher labor costs, reinvestments in stores, and restructuring actions weighed on profitability in the near term, even as demand trends stabilized.

Note: Starbucks FY'25 ended on September 28, 2025.

Outlook

For FY2026, Starbucks struck a cautiously optimistic tone, signaling that the worst of its traffic and comps pressure may be behind it, but stopping short of a sharp rebound. Management guided for low- to mid-single-digit revenue growth, supported by gradual improvement in global comparable sales, particularly in international markets, while the U.S. recovery is expected to be slower and back-end loaded. On profitability, Starbucks acknowledged that margin pressure will persist in the near term due to elevated labor costs, reinvestment in store operations, and restructuring initiatives under its turnaround plan, with meaningful margin expansion unlikely until execution improves and volumes normalize. Capital allocation remains shareholder-friendly, with dividends intact and buybacks resuming opportunistically, but overall guidance emphasized stabilization and operational repair in FY2026 rather than a full earnings rebound.

Turnaround Plans

Starbucks’ turnaround centers on its “Back to Starbucks” strategy, which is focused on fixing execution, simplifying the business, and rebuilding traffic rather than chasing rapid expansion. The key pillars include simplifying the menu by cutting underperforming and complex items to improve speed and consistency, resetting in-store operations with better labor deployment, improved scheduling, and reduced wait times, and reinvesting in the core coffee experience—emphasizing beverage quality, personalization, and store ambiance.

Starbucks is also tightening value and pricing architecture, using targeted promotions and loyalty offers instead of broad discounting to protect brand equity. On the footprint side, the company is closing or relocating underperforming stores, especially in dense U.S. markets, while continuing disciplined international expansion where returns are stronger. Finally, management is streamlining corporate costs and supply-chain processes to support long-term margins, even though these actions create near-term earnings pressure. Collectively, the plan is designed to stabilize traffic first, then rebuild margins over time, making FY2026 more about operational repair than rapid profit growth.

BUSINESS SUMMARY

Starbucks is the world's leading roaster and retailer of specialty coffee. Through its global network of owned and franchised coffee retail outlets, Starbucks offers a wide range of products like high-quality whole bean coffees, freshly brewed coffees, Italian-style espresso beverages, cold blended beverages, food items like sandwiches, premium teas, and coffee-making equipment.

Starbucks' stores are located near offices and residential areas. They are larger, compared to its licensed stores which are much smaller and mostly located at airports and supermarkets.

Starbucks also sells its packaged coffee and tea through retail channels such as grocery stores, warehouse clubs, convenience stores, and US food service accounts.

SOURCES OF VALUE

The Company-Operated Stores division is more valuable than the Franchise Stores division for Starbucks for the following two reasons:

Company-operated stores generate more revenues than franchised stores

Starbucks makes money through its company-owned stores as well as through franchise fees and royalties from franchised stores. Starbucks earns higher profit margins from franchised stores compared to company-owned stores because there are no operational and employee costs involved with franchised stores, hence Starbucks gets to keep the entire royalty & rent fee without paying for any costs.

Revenues earned from Starbucks' company-owned stores are much higher than the franchised stores. This is because, although there are costs involved, Starbucks owns 100% of the revenues from its restaurants, while it gets a percentage of the revenues (in the form of royalty fees) from its franchised restaurants.

Number of company-owned stores comparable to franchised stores

Food & beverage companies, in general, increase their reach and profits by having a large base of franchised stores. For example, McDonald's has 95% of its stores franchised, making the franchise business more valuable to its stock. However, Starbucks has almost an equal number of company-owned stores and franchised stores. In FY'25, Starbucks had 41,620 stores: 52% company-operated and 48% licensed.

KEY TRENDS

Growth in China

China remains a long-term growth driver for the company, as its GDP, is projected to grow from around $20 trillion in 2025 to nearly $28 trillion by 2027 - likely driven by a massive increase in its middle class. Moreover, the per capita coffee consumption in China is about one-half of one cup per person per year compared to approximately 300 cups per person per year in the U.S. While consumption levels in China may never be able to match those in the U.S., even attaining a small fraction of it will benefit the company immensely.

International expansion fueling growth

Most new restaurants the company plans to open are in China/Asia Pacific. The number of Starbucks outlets in these countries is still much less than the number in the U.S. New outlets opened will be a mix of company-operated and franchised restaurants.

Focus On Drive-Thrus

SBUX intends to open a majority of its new U.S. restaurants in middle America and the South, with over 80% of stores built in the year being drive-thrus. The company states that its research has indicated significant opportunities for store expansion in higher-growth, and lower-cost markets, particularly when considering rising wages and occupancy costs.