Starbucks Q2 Revenue Hits $8.8B Despite North America Sales Decline

Rhea-AI Summary

Starbucks reported mixed Q2 fiscal 2025 results with consolidated net revenues up 2% to $8.8 billion. The company faced challenges as global comparable store sales declined 1%, with U.S. sales down 2%. However, international markets showed resilience with a 2% increase.

Key financial metrics include:

• GAAP EPS: $0.34 (down 50% year-over-year)
• Non-GAAP EPS: $0.41 (down 40%)
• Operating margin contracted to 6.9% (GAAP) and 8.2% (non-GAAP)

The company's "Back to Starbucks" strategy is showing early progress despite challenges. Store expansion continued with 213 net new stores, reaching 40,789 globally. Notable developments include the appointment of Cathy Smith as CFO and a reduction of 1,100 support roles. The company maintained its dividend commitment, declaring $0.61 per share for Q2.

Positive

• International comparable store sales increased 2% with 3% transaction growth
• Net new store growth continues with 213 new stores, reaching 40,789 total stores
• Consolidated net revenues increased 2% to $8.8 billion
• Strong dividend history with 60 consecutive quarters of payouts and 19% CAGR
• Store expansion in key markets with 6% growth in International segment

Negative

• Global comparable store sales declined 1% with 2% drop in transactions
• U.S. comparable store sales declined 2% with 4% drop in transactions
• GAAP operating margin contracted significantly by 590 basis points to 6.9%
• GAAP earnings per share declined 50% year-over-year to $0.34
• North America operating income decreased 35% to $748.3 million
• Channel Development segment revenue declined 2% with 11% drop in operating income
• Workforce reduction of 1,100 support partner roles announced
• CFO change amid challenging performance period

Insights

Financial Analyst

Starbucks Q2 shows alarming profit decline with EPS down 50%, massive margin contraction, despite modest revenue growth.

Starbucks' Q2 FY25 results reveal a troubling profitability spiral despite modest top-line growth. The 2% revenue increase to $8.8 billion masks severe profit deterioration: GAAP EPS plummeted 50% to $0.34 while non-GAAP EPS dropped 40% to $0.41. Most concerning is the severe margin compression across all segments - GAAP operating margin contracted 590 basis points to 6.9%, with North America margins collapsing from 18.0% to 11.6%.

This profit erosion stems from increased labor investments supporting the "Back to Starbucks" turnaround strategy and restructuring costs for simplifying their global support organization, including the elimination of 1,100 support roles. These initiatives are pressuring near-term profitability while management frames them as necessary for long-term growth.

The fundamental question is whether these investments are addressing the core issue - declining traffic. Global comparable transactions fell 2%, with U.S. transactions down 4%, indicating fewer customers are visiting Starbucks stores. Price increases (3% higher average ticket in the U.S.) are only partially offsetting this traffic decline.

Meanwhile, the company maintains its capital return commitment with a $0.61 quarterly dividend, marking 60 consecutive quarters of payouts with a nearly 19% CAGR over that period. This commitment to shareholder returns amid substantial earnings decline warrants monitoring, as it increases pressure on the success of their turnaround initiatives.

Retail Business Analyst

Starbucks faces critical U.S. traffic declines (-4%) despite price increases, while international markets show some resilience.

Starbucks' Q2 results reveal divergent performance across markets and highlight execution challenges in its core U.S. business. The North American segment, representing 74% of total revenue, posted a 1% comparable sales decline driven by a 4% drop in transactions, partially offset by a 3% increase in average ticket. This pattern of fewer visits at higher price points indicates potential value perception issues in Starbucks' largest market.

International markets offer a brighter picture with 2% comparable growth driven by 3% transaction increases. China delivered flat comparable sales with a promising 4% transaction increase offset by a 4% ticket decline, suggesting a possible volume-based recovery strategy in that market.

The company's store expansion continues with 213 net new openings, bringing the global footprint to 40,789 locations. U.S. and China remain the focal points, comprising 61% of the portfolio with 17,122 and 7,758 stores respectively.

CEO Brian Niccol's "Back to Starbucks" strategy appears to be in early implementation, with substantial organizational changes including workforce reductions. The CFO transition to Cathy Smith adds another layer of change to the leadership team. Smith's comment that they are "working to build back a better business" acknowledges the turnaround nature of their current position, with emphasis on "developing new muscles to test, iterate and scale quickly" for long-term growth.

The challenge ahead is reversing traffic declines while maintaining price integrity, particularly in the competitive U.S. specialty coffee market. The early signs of transaction improvement in international markets may provide a blueprint for the struggling North American segment.

Starbucks Q2 Earnings Show Revenue Growth Amid Ongoing Business Turnaround Efforts

Starbucks Corporation (Nasdaq: SBUX) reported its fiscal second-quarter 2025 results on Tuesday, showing modest revenue growth despite continued challenges in comparable store sales. The company posted a 2% increase in consolidated net revenues to $8.8 billion while implementing its "Back to Starbucks" turnaround strategy, according to the company's earnings release.

The coffee giant's earnings showed significant year-over-year declines, with GAAP earnings per share falling 50% to $0.34 and non-GAAP earnings per share dropping 40% to $0.41 compared to the same period last year.

Comparable Sales Performance

Starbucks reported a 1% decline in global comparable store sales for the quarter, driven by a 2% decrease in comparable transactions, partially offset by a 1% increase in average ticket size. In the crucial North American market, comparable store sales fell 1%, with U.S. comparable sales specifically declining 2%.

International performance showed more resilience, with comparable store sales increasing 2%, driven by a 3% increase in transactions, though partially offset by a 1% decline in average ticket. The company noted that China comparable store sales were flat, with a 4% increase in transactions countered by a 4% decrease in average ticket.

Financial Performance By Segment

Breaking down segment performance, Starbucks' North America segment saw revenues increase 1% to $6.5 billion, primarily due to 5% net new company-operated store growth over the past year. However, operating income for the segment decreased substantially to $748.3 million compared to $1.1 billion in Q2 FY24, with operating margin contracting from 18.0% to 11.6%.

The International segment demonstrated stronger top-line growth with revenues increasing 6% to $1.9 billion, driven by 8% net new company-operated store growth and gains in licensed store business. Despite this growth, operating income fell to $217.0 million from $233.8 million a year earlier, with operating margin contracting from 13.3% to 11.6%.

Meanwhile, the Channel Development segment saw a 2% decline in net revenues to $409.0 million, with operating income decreasing to $193.5 million from $216.3 million in the prior-year period. Operating margin for this segment contracted from 51.7% to 47.3%.

Store Growth Continues

The company opened 213 net new stores during the quarter, ending the period with 40,789 locations globally. According to the release, 53% of these stores are company-operated while 47% are licensed. The U.S. and China remain Starbucks' largest markets, together accounting for 61% of the company's global portfolio with 17,122 and 7,758 stores respectively.

Management Commentary on Turnaround Strategy

Brian Niccol, who joined Starbucks as chairman and chief executive officer earlier this year, expressed confidence in the company's recovery strategy, stating: "My optimism has turned into confidence that our 'Back to Starbucks' plan is the right strategy to turn the business around and to unlock opportunities ahead."

Niccol added, "Improving transaction comp in a tough consumer environment at our scale is a testament to the power of our brand and partners getting 'Back to Starbucks.' We are on track and if anything, I see more opportunity than I imagined."

New Chief Financial Officer Cathy Smith, who was appointed to the role effective March 24, 2025, acknowledged current performance challenges while emphasizing future growth potential: "While our financial results are far from Starbucks potential, we are working to build back a better business. We are developing new muscles to test, iterate and scale quickly, in service of long-term, durable growth and strong returns on invested capital."

Corporate Updates

The earnings release also highlighted several recent corporate developments. In February, Starbucks announced the reduction of 1,100 support partner roles and several hundred additional open positions within its global support organization as part of its "Back to Starbucks" plan.

The company's Board of Directors declared a quarterly cash dividend of $0.61 per share, payable on May 30, 2025, to shareholders of record on May 16, 2025. Starbucks noted this marks its 60th consecutive quarter of dividend payouts, with a compound annual growth rate of nearly 19% over that period.

Additionally, the company announced that Mellody Hobson, former lead independent director, retired from the Starbucks Board of Directors after 20 years of service, with Jørgen Vig Knudstorp appointed as the new lead independent director.

This article is based solely on information provided in Starbucks Corporation's press release dated for Q2 fiscal year 2025 results. The content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Stock Titan and its writers make no representations as to the accuracy, completeness, or timeliness of the information. Investors should conduct their own due diligence before making any investment decisions.

Source: Starbux

FAQ

How did Starbucks (SBUX) perform in Q2 2025 compared to last year?

Starbucks reported Q2 2025 earnings with GAAP EPS of $0.34 (down 50%) and non-GAAP EPS of $0.41 (down 40%). Global comparable store sales declined 1%, while revenue increased 2% to $8.8 billion.

What caused Starbucks' operating margin decline in Q2 2025?

Starbucks' GAAP operating margin contracted 590 basis points to 6.9%, primarily due to deleverage and additional labor costs supporting 'Back to Starbucks' strategy, along with restructuring costs for simplifying global support organization.

How many stores does Starbucks have in China and US as of Q2 2025?

As of Q2 2025, Starbucks operates 17,122 stores in the United States and 7,758 stores in China, together comprising 61% of the company's global portfolio of 40,789 stores.

What is Starbucks' dividend payment for Q2 2025?

Starbucks declared a cash dividend of $0.61 per share, payable on May 30, 2025, to shareholders of record on May 16, 2025, marking 60 consecutive quarters of dividend payouts.

How is Starbucks performing in China market Q2 2025?

Starbucks' China comparable store sales were flat in Q2 2025, with a 4% increase in comparable transactions offset by a 4% decline in average ticket size.