01—Abstract
Summary
Summary of the 8-K filed January 28, 2026. Cited figures are marked; the original filing is the authoritative source.
Starbucks reported fiscal Q1 2026 (13 weeks ended December 28, 2025) with consolidated net revenues up 5.5% to $9.9 billiona and global comparable store sales up 4%, driven by a 3% rise in comparable transactions.
The top line is the bright spot: U.S. comparable transactions grew for the first time in eight quarters, which management attributes to its "Back to Starbucks" turnaround strategy. Profitability, however, weakened sharply. GAAP operating margin fell 290 basis points to 9.0% and GAAP EPS dropped 62% to $0.26b.
On a non-GAAP basis, operating margin contracted 180 basis points to 10.1% and EPS declined 19% to $0.56c. Management attributed the margin pressure to labor investments tied to Back to Starbucks, along with inflation from elevated coffee prices and tariffs. North America drove most of the decline, with operating margin falling to 11.9% from 16.7%.
The GAAP results were also distorted by several one-time items. Restructuring and impairment charges totaled $88.1 milliond, transaction costs were $19.9 million, and a $0.23 per-share income tax charge followed from reclassifying China retail operations as held for sale. That reclassification is tied to a planned joint venture with Boyu Capital, under which Boyu would acquire up to 60% of Starbucks China retail, with closing expected in spring 2026 subject to regulatory approval.
Balance sheet assets held for sale total $4.7 billion. The company also guided FY2026 non-GAAP EPS to $2.15 to $2.40, comparable store sales growth of 3% or more, a slight year-over-year improvement in non-GAAP operating margin, and 600 to 650 net new coffeehouses. The board declared a $0.62 quarterly dividend, and the company will hold its 2026 Investor Day on January 29, 2026.
For investors, the key question is whether the sales recovery can offset elevated costs and eventually restore margin expansion. The guidance for a slight margin improvement implies that the company expects operating leverage to return during the year, which is a significant assumption given the current cost pressures. The guidance also assumes China retail stays company-operated in the second half, so the pending joint venture could change the earnings base.
02—Key points
Key Highlights
- Consolidated net revenues rose 5.5% to $9.9 billion, and global comparable store sales grew 4%, led by a 3% increase in transactions.
- U.S. comparable transactions grew for the first time in eight quarters, an early sign that the Back to Starbucks strategy is gaining traction.
- Non-GAAP EPS fell 19% to $0.56 and non-GAAP operating margin contracted 180 bps to 10.1%, driven by labor investments, coffee costs, and tariffs.
- GAAP EPS of $0.26 was depressed by $88.1M in restructuring charges, $19.9M in transaction costs, and a $0.23/share tax charge tied to the China retail held-for-sale classification.
- North America operating margin fell 480 bps to 11.9%, while International margin improved 100 bps to 13.7% and Channel Development revenue grew 20%.
- FY2026 guidance: non-GAAP EPS of $2.15 to $2.40, comparable store sales growth of 3% or more, slightly improved non-GAAP operating margin, and 600 to 650 net new stores.
- The company is forming a China retail joint venture with Boyu Capital (up to 60% sold, closing expected in spring 2026), and declared a $0.62 quarterly dividend.
03—Questions
Frequently Asked Questions
Why did Starbucks' earnings fall even though sales grew?
Revenue rose 5.5%, but costs rose faster. Management pointed to labor investments supporting the Back to Starbucks plan, plus inflation from elevated coffee prices and tariffs. Store operating expenses rose 8.3% and product and distribution costs rose 13.1%, compressing margins, particularly in North America, where operating margin fell to 11.9% from 16.7%.
What is the difference between the GAAP and non-GAAP results?
GAAP EPS of $0.26 includes restructuring and impairment charges of $88.1M, transaction costs of $19.9M, and a $0.23 per-share tax charge from reclassifying China retail operations as held for sale. Excluding these items, non-GAAP EPS was $0.56. Investors should weigh the one-time items against the recurring cost pressures, which are not excluded.
What is happening with Starbucks' China business?
Starbucks agreed to form a joint venture with Boyu Capital, which would acquire up to a 60% interest in its China retail operations, while Starbucks keeps a 40% stake and continues to license the brand. The deal is expected to close in spring 2026, subject to regulatory approval. China comparable store sales rose 7% in the quarter. FY2026 guidance assumes China retail remains company-operated in the second half, so the deal could change the earnings base.
Is the FY2026 guidance achievable, and does it signal margin recovery?
Guidance calls for non-GAAP EPS of $2.15 to $2.40 and only a slight year-over-year improvement in non-GAAP operating margin. Q1 margins fell 180 bps, so the guide implies margin expansion later in the year. Achieving it depends on sustaining the 3%+ comparable sales growth while controlling labor and coffee costs. The company also expects to provide more outlook detail on its earnings call.
Is the dividend at risk given the earnings decline?
The board declared a $0.62 quarterly dividend, payable February 27, 2026, with a record date of February 13, 2026. Dividend cash payments were $705.1M in the quarter, while operating cash flow was $1.6 billion, so coverage remained adequate for the period. Management highlighted 63 consecutive quarters of dividend payments. Investors should still monitor the payout ratio against non-GAAP EPS, which is now lower than in the prior year.
04—Continue