Starbucks (SBUX) disappointed investors with another weak earnings report, showing its struggles to attract more customers. After a positive start earlier this year, the company failed to meet sales and profit expectations in its latest report.
Starbucks did not provide formal guidance but mentioned that it expects profit per share to improve in the second half of 2025 as its “Back to Starbucks” plan picks up pace.
Earnings per share dropped nearly 40% compared to last year, falling to $0.41, which was far below estimates. This drop resulted from lower sales and higher costs from the “Back to Starbucks” initiative, which caused the operating margin to fall to 8.2%. The costs rose mainly due to staffing and investments in store experience and technology.
CEO Brian Niccol, who took over last September, started the “Back to Starbucks” plan to make SBUX a top coffeehouse again by improving customer experience and investing in staff training and technology.
However, these large investments have not yet led to stronger sales or increased customer traffic, raising concerns about when the plan will actually boost growth.
In the second quarter, SBUX continued to see a decline in sales, reflecting ongoing struggles to attract customers. There was a slight improvement, as global sales fell by 1% this quarter compared to a 4% drop last quarter. In North America, sales were also down 1%, with customer visits decreasing by 4%, while last quarter saw a 4% sales drop and a 6% decline in visits.
To improve sales in North America, SBUX has been raising prices, with a 3% increase in average ticket size this quarter. However, ongoing price hikes may face pushback from customers, potentially worsening the drop in traffic. In China, customer visits increased by 4%, but this was countered by a 4% drop in price due to strong competition lowering prices.
While SBUX claims the “Back to Starbucks” plan is on track, the results for the second quarter show little sign of a positive effect on sales or profits. The company continues to face strong challenges, especially with falling customer traffic.
Although the increase in average ticket size helps somewhat, it is not a solution for long-term growth. The expectation of better earnings later in the year offers some hope, but investor confidence may remain shaky until the company shows real improvement in its performance.