Starbucks Q1 Fiscal 2026 Earnings Summary: Transaction-Led Growth Signals Turnaround Progress
Starbucks Invests for Long-Term Margin Recovery
Starbucks delivered a meaningful top-line inflection in fiscal Q1 2026, marking one of the clearest signs yet that its Back to Starbucks turnaround strategy is beginning to take hold. Revenue rose 5% year-over-year to $9.9 billion, exceeding expectations, while global comparable store sales increased 4%, well ahead of forecasts. Importantly, growth was driven primarily by transactions (+3%) rather than pricing, signaling improving customer engagement and traffic momentum.
While profitability declined year-over-year as expected, management emphasized that Q1 reflects a deliberate phase of front-loaded investments in labor, service standards, technology, and store experience. Starbucks reiterated that its recovery is sequenced intentionally: stabilize traffic first, then rebuild margins, followed by sustained earnings growth.
Key Financial Highlights
Revenue: $9.9B (+5% y/y; above consensus)
Global Comparable Sales: +4% (vs. ~2–3% expected)
U.S. Comparable Sales: +4% (transactions +3%, ticket +1%)
International Comparable Sales: +5%; China comps +7%
Operating Margin: 10.1% (–180 bps y/y)
EPS: $0.56 (down y/y, reflecting investment cycle)
Starbucks Rewards Members: 35.5M (record)
North America: Traffic Recovery Marks a Critical Milestone
North America revenue grew 3% year-over-year to $7.3 billion, with U.S. comparable sales up 4%, driven by positive transaction growth for the first time in eight quarters. This inflection is a key proof point for Starbucks’ operational reset.
Starbucks Rewards reached an all-time high of 35.5 million active members, while Rewards transactions grew year-over-year for the first time since fiscal 2022. Non-Rewards transactions grew even faster, suggesting broader brand re-engagement beyond the loyalty base.
Management credited the improvement to Green Apron Service, enhanced staffing models, better throughput at peak periods, and AI-enabled tools like Green Dot Assist, which are improving order accuracy and partner efficiency. Customer satisfaction, speed of service, and connection scores all improved during the quarter, reinforcing confidence that operational changes are translating into tangible demand gains.
International & Channel Development: Growth Engines Remain Durable
International revenue rose 10% year-over-year to $2.1 billion, with comparable sales up 5%, led by strong execution in China, Japan, and the U.K. China comps accelerated to +7%, driven by transaction growth, marking the third consecutive quarter of positive momentum.
The company announced a strategic joint venture with Boyu Capital, transitioning China toward a more capital-light licensed model while retaining a 40% ownership stake. Over time, management expects this structure to enhance margin stability, reduce volatility, and support disciplined unit expansion, albeit with modest near-term EPS dilution.
Channel Development revenue increased 19% year-over-year, driven by the Global Coffee Alliance and ready-to-drink products. Continued innovation in at-home coffee reinforces Starbucks’ brand relevance beyond the café footprint and provides a higher-margin, diversified revenue stream.
Margins & Earnings: Investment Phase Weighs on Near-Term Profitability
Operating margin declined 180 basis points year-over-year to 10.1%, reflecting higher labor investments tied to the turnaround, elevated coffee costs, and tariff-related pressures. North America margins were the primary drag, while International margins improved modestly.
EPS of $0.56 declined 19% year-over-year, masking underlying business momentum. Management reiterated that margin pressure is expected to peak in the first half of fiscal 2026, with easing commodity costs, operating leverage, and anniversarying of investments supporting gradual margin recovery in the back half of the year.
Outlook: Revenue First, Margins Follow
For fiscal 2026, Starbucks guided to:
Global comparable sales growth of 3% or better
600–650 net new coffeehouses globally
Slight year-over-year operating margin improvement
EPS of $2.15–$2.40, reflecting continued investment early in the year and stronger earnings power in the back half
Management emphasized that additional clarity on medium- and long-term margin and growth targets will be provided at Investor Day, which the Street views as a key catalyst.
Here’s Our Take
Starbucks’ Q1 results represent a clear turning point in its turnaround, with transaction-driven comp growth validating that operational, labor, and brand investments are resonating with customers. While margins remain under pressure, the recovery in traffic, improving Rewards engagement, and accelerating international performance suggest the company is moving from stabilization into the early stages of a multi-year earnings reset.
Execution risk remains — particularly in sustaining traffic gains and converting revenue momentum into margin expansion — but this quarter strengthens confidence that the strategy is working as designed. Starbucks is intentionally prioritizing long-term brand strength and customer experience over short-term profitability, a trade-off that appears increasingly justified as top-line momentum builds.
The next phase will be about discipline: maintaining traffic growth, unlocking operating leverage, and restoring margins without eroding brand equity. Q1 shows the company is on the right path — even if the full payoff remains a few quarters away.
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