Starbucks' first quarter results were met with a significant negative market reaction, as both revenue and non-GAAP profit came in below Wall Street’s expectations. Management attributed the underperformance to ongoing investments in labor and operational changes tied to its “Back to Starbucks” turnaround plan. CEO Brian Niccol openly described the quarter’s financial outcomes as “disappointing,” noting that despite the challenges, the company has started to see early indicators of progress in areas such as partner engagement and transaction quality. The leadership team emphasized that these investments and operational shifts, while pressuring margins, are necessary to drive a sustainable recovery in the business.
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Starbucks (SBUX) Q1 CY2025 Highlights:
- Revenue: $8.76 billion vs analyst estimates of $8.81 billion (2.3% year-on-year growth, 0.6% miss)
- Adjusted EPS: $0.41 vs analyst expectations of $0.48 (15.2% miss)
- Adjusted EBITDA: $1.14 billion vs analyst estimates of $1.23 billion (13% margin, 7.7% miss)
- Operating Margin: 6.9%, down from 12.8% in the same quarter last year
- Locations: 40,789 at quarter end, up from 38,951 in the same quarter last year
- Same-Store Sales fell 1% year on year (-4% in the same quarter last year)
- Market Capitalization: $104 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Starbucks’s Q1 Earnings Call
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David Palmer (Evercore ISI) asked about the shift from equipment investment to labor and how this impacts store-level costs and deployment speed. CEO Brian Niccol explained that early pilot results justify the move, as labor investments are more effective and scalable than further equipment rollouts.
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Sara Senatore (Bank of America) pressed on margin pressures and whether Starbucks’ store economics are structurally changing due to increased labor. Niccol responded that recent underinvestment in labor was not offset by equipment, and rebuilding around the customer experience should restore transaction growth and margins over time.
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David Tarantino (Baird) sought clarity on the pace of new store openings amid portfolio evaluation. Niccol indicated that Starbucks will temporarily slow development until new cost and design standards are established, after which growth will accelerate.
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Brian Harbour (Morgan Stanley) questioned the effects of menu simplification and the sequencing of future innovation. Niccol said menu simplification frees resources for high-impact innovation and noted positive transaction trends in stores adopting the new approach.
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Andrew Charles (TD Cowen) asked about defensive levers if economic conditions worsen in the U.S. Niccol emphasized accelerating experience-focused initiatives and menu innovation, while maintaining Starbucks’ positioning as an accessible “everyday luxury.”
Catalysts in Upcoming Quarters
In upcoming quarters, our analysts will watch (1) the rollout and performance of the new labor-driven service model across U.S. stores, (2) whether early transaction improvements in key international markets can be sustained and built upon, and (3) Starbucks’ ability to control costs as wage investments and supply chain changes continue. Progress on new product launches and updates to the loyalty program will also be critical indicators of recovery.
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