Starbucks Corporation (SBUX) Earnings

Management highlights

- Core Strategy Progress (Back to Starbucks Plan) • Delivered fourth consecutive quarter of positive global comparable sales and second consecutive quarter of consolidated margin growth, confirming the plan is working ahead of schedule. • Green Apron Service, launched one year prior, is the operational foundation of the plan: store leadership ownership and accountability have been restored, with investments in tools, labor hours, standards and coaching. Two-thirds of North America company-operated stores are now rated at 4+ performance levels, up 5 points quarter-over-quarter and 40 points since launch. • Improved store operations: SmartQ optimization hit target service times across all access points amid transaction growth; food availability now sits near 99%, up 10 percentage points year-over-year. Store leadership retention improved 7 percentage points year-over-year, which correlates strongly with better store performance. • Launched the Best of Starbucks incentive program, allowing eligible frontline partners to earn up to $300 per quarter for meeting performance goals. - Brand, Innovation and Loyalty • Brand affinity, consideration, and purchase intent hit five-year highs, with customer connection improving significantly year-over-year. Growth is broad-based across generations, income groups, and rewards/non-rewards members. • Refreshers is a standout innovation platform, delivering double-digit year-over-year U.S. revenue growth, with customizable options driving engagement across morning and afternoon day parts. Marketing tied to cultural moments (Coachella, Miffy merch, viral Bearistas) has boosted brand visibility. • The new Starbucks Rewards program (4 months post-launch) has 35.8 million 90-day active U.S. members, with higher-than-expected engagement and stored value reloads; member-exclusive early access to limited-time offerings (like the s'mores coffee lineup) is driving retention and trial, with the s'mores launch tracking as the strongest summer LTO in years. - Store Experience and Portfolio Optimization • Low-cost coffeehouse uplift program (adding warmth, seating and digital upgrades at a fraction of full remodel costs) surpassed 1,000 completed North America stores, hitting the 2026 fiscal goal ahead of schedule. Early data shows transaction lifts across all day parts, access points and customer segments. Management is accelerating the program to complete at least 1,500 uplifts by end-fiscal 2026, with further acceleration planned for 2027. Uplifts cost an average of $150,000 per store and are completed overnight without closing stores, delivering strong return on investment. • Portfolio hygiene: Management is identifying and closing underperforming stores, typically due to poor location or unviable economics rather than lack of demand in the broader trade area, to build a stronger pipeline of high-quality new store openings. - International Strategy • Following the China joint venture transition, 90% of the international portfolio operates under a capital-light licensed structure. Management is applying North America licensed business best practices to improve global brand standards, financial discipline, and performance accountability, while restructuring the international support organization to align with this capital-efficient growth model. Management remains confident the China JV will reach 20,000 stores over the long term. - Operational and Supply Chain Improvement • The $2 billion gross cost savings plan (on track to be realized by fiscal 2028) is driving G&A and operating expense reductions; 2026 fiscal consolidated G&A is expected to come in below 2023 levels. Q3 2026 consolidated G&A fell 20% year-over-year due to cost savings, China deconsolidation, and lapping 2025 leadership transition expenses. Coffee cost pressures have moderated from earlier in the fiscal year, and tariff refunds in Q3 offset all tariffs incurred in the first three quarters of 2026.

Guidance

- Management raised full fiscal 2026 guidance, driven by stronger-than-expected top line momentum, margin expansion, and a stronger balance sheet. - Q4 2026 U.S. comparable sales growth is expected to be 6.5% or better, bringing full fiscal 2026 U.S. comp growth to a little over 6% and global comp growth to nearly 6%. - Full fiscal 2026 consolidated net revenues are expected to be flat to slightly higher year-over-year, reflecting the impact of the China joint venture deconsolidation. - Consolidated operating margin guidance is raised to greater than 11%, driven by sales leverage, cost discipline, and easing coffee price pressures; coffee price impacts are expected to be largely immaterial to year-over-year margin comparisons in Q4. - Full fiscal 2026 EPS guidance is raised to a range of $2.55 to $2.65. - The expectation of 600 to 650 net new coffeehouse openings in full fiscal 2026 remains unchanged, driven by international growth. - The $2 billion gross cost savings plan remains on track for full realization by fiscal 2028, with balanced savings across product/distribution costs, operating expenses, and G&A.

Segment performance

1. North America: Q3 net revenues of $7.4 billion, accounting for 79.6% of consolidated net revenue. Company-operated comparable store sales grew 8.1% (U.S. comps up 7.9%, led by 4.2% transaction growth and 3.6% average ticket growth; Canada comps stronger than the U.S.). Operating margin expanded 280 basis points year-over-year, and over 100 basis points when excluding tariff refunds. Total segment store count reached 18,371, with 27 net new company-operated openings and 41 net licensed store closures; licensed revenue was roughly flat year-over-year. 90-day active Starbucks Rewards members in the U.S. reached 35.8 million. 2. International: Q3 net revenues of $1.3 billion, accounting for 14.0% of consolidated net revenue. Q3 operating income was $300.9 million. Company-operated comparable store sales grew 5.7% on a healthy mix of ticket and transaction growth, led by strength in Japan and the UK. The segment posted its sixth consecutive quarter of positive system-wide comps. China retail operations were deconsolidated this quarter, with $53 million of China-related net revenue reported in the segment; 189 net new international coffeehouse openings brought total segment store count to 22,933. Approximately 90% of the international portfolio is now managed via a licensed structure following the China joint venture transition. 3. Channel Development: Q3 net revenues grew 22% year-over-year to $587.9 million, accounting for 6.3% of consolidated net revenue, with growth supported by coffee inflation and strong engagement from new product launches.

Risks & headwinds

- The consumer operating environment remains dynamic, with continued variability in broad consumer sentiment and year-over-year traffic comparison headwinds expected in Q4. - Underperformance of some North American stores requires ongoing portfolio assessment and potential closures to maintain a healthy store base, creating near-term uncertainty for unit count composition. - All forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from projected guidance, as detailed in Starbucks' SEC filings.

Analyst Q&A

• Q: How can Starbucks sustain current above-target same-store sales momentum over the next few years, and how much room remains for growth after recent recovery? /

  A: Management notes current momentum is driven by improved operating practices from the Green Apron Service model, which has improved staffing, routines and customer experience. There is still significant room to grow transactions in both the morning and afternoon day parts, and innovation across drinks, food, merchandise and digital platforms is still in early stages. Consistent execution of the customer experience strategy is expected to support sustained above-trend growth.

• Q: What progress has been made in morning vs. afternoon day part growth, and when will afternoon become an outsized growth driver? /

  A: Morning has been the biggest winner in transaction growth to date, as it was the initial bottleneck the Back to Starbucks plan targeted, though afternoon is also seeing steady growth. Building out afternoon growth will require expanded relevant beverage and food offerings (led by the high-performing Refreshers platform, which already resonates with afternoon customers) and improved operational routines across all access points. The current trajectory aligns with the stated strategy of winning the morning first, then growing the afternoon.

• Q: How do Starbucks' coffeehouse uplifts perform, and what characteristics drive store closure decisions? /

  A: Uplifts deliver positive transaction growth and a positive brand halo across all store formats, day parts and locations, with early data showing improved brand perception and higher partner pride. They deliver strong returns on the low average $150,000 investment, as they are completed overnight without closing stores. Store closures are driven by poor individual location performance or uneconomical assets, not lack of demand for Starbucks in the broader trade area; management will typically open a new, better-positioned store in the same area to capture demand.

• Q: What is the current level of marketing spend, and will marketing investment as a percentage of sales continue to grow? /

  A: Marketing spend is currently a little over 2% of sales, and the budget will grow with the business with no fixed cap on spend as a percentage of sales. Management has not seen diminishing returns on marketing investment, which is focused on driving transactions, building brand affinity, and tying Starbucks to relevant cultural moments. The team is consistently optimizing media mix and delivering strong returns on investment.

• Q: Is there meaningful cannibalization of in-store visits from delivery, and what are the margin impacts of scaling delivery? /

  A: Management reports no meaningful cannibalization of in-store visits from delivery to date, and no margin tradeoff from scaling the channel. Adding delivery to the Starbucks app (with rewards points integration, which is not currently available) is expected to unlock significant additional upside for the channel.