Starbucks (SBUX 0.14%) is a double-edged sword for investors right now. Shares have been on a run thus far in 2025, and the company managed to beat on earnings in its most recent quarter, but there's still a lot of work to be done. Despite the beats on estimates, revenue and earnings are still down, and same-store sales declined in the most recent quarter.
Let's assess where the coffee chain could go from here -- and what it means for investors.
Global comparable-store sales (or comps) were weak, dropping 4% during the quarter. Overall, the company has relied on increased prices as total comparable transactions declined 6% during the quarter. This is the fourth quarter in a row that same-store sales have declined, and it leaves a pretty big question mark on the company's progress.
Even the newer markets have struggled, with total China comp-store sales declining 6%. Total revenue for the quarter was down 0.3% to just under $9.4 billion. All of this while net income was driven down nearly 24% year over year to $780.8 million, with earnings per diluted share dropping a comparable 23.3% to $0.69 per share.
Yes, Starbucks is in the midst of an attempted turnaround under the new leadership of Brian Niccol, the former CEO of Chipotle Mexican Grill, and I hope it works, but Starbucks doesn't look like a very good investment right now.
Analyst estimates have tended to be to the downside over the past fiscal year, and they put 2025 earnings at $3.28 per share. That's a decline relative to fiscal 2024, and it would leave investors waiting to see what happens in 2026, where estimates rise to $3.82 per share, which would have the stock trading at around 29 times fiscal 2026 earnings. This is lower than the 10-year average P/E ratio of 34.8, but the company's performance isn't tracking what it has done over the last 10 years, so the valuation seems justified.
Discounted transactions saw a decline of 40% in the last quarter. Niccol says this affected sales during the quarter and that it is part of putting things back on track. However, the company also pushed discounts in China to become more competitive, so there's a bit of a pull and push here that seems tough to reconcile for the company to make a balanced return to growth across the board.
Among the objectives laid out by the company for fiscal 2025 are extra charges for nondairy options in coffee and a 30% reduction to the food menu. I'm a bit skeptical of these measures. Extra charges for nondairy would theoretically increase revenue, assuming customers go for it, but cutting the food menu would hurt overall revenue even if it cut down on expenses.
It seems too early to dive in on this one. Investors will need to see more, even though Starbucks now has a great CEO. Given that the stock has already gained more than 20% this year on hopes of a turnaround, I think some of its potential is baked in. Chasing a stock that has been experiencing declining traffic and same-store sales isn't the best of ideas.
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