Starbucks is beginning to demonstrate that its efforts to rebuild customer demand and improve store performance are producing measurable results. The company’s fourth-quarter fiscal 2026 results showed stronger comparable coffeehouse sales, improved operating margins and higher earnings, providing evidence that its turnaround strategy is gaining traction. However, the improvement is not equally strong across all markets, and the company’s latest financial performance also reveals how much work remains before growth becomes more consistent.
For the quarter ended September 27, global comparable coffeehouse sales increased 7.2%, while US comparable sales rose 7.7%. Adjusted earnings per share reached $0.80, up 54% from the previous year. The results were supported by higher average customer spending, stronger transactions in North America and improvements in store operations.
Yet consolidated quarterly revenue declined 4% to approximately $9.1 billion. This was primarily related to Starbucks’ decision to transfer its retail operations in China to a licensed joint venture model. The transaction changed the way revenue from the Chinese business is recorded, making comparisons with the previous year more complicated.
The results suggest that Starbucks is making progress in restoring its core business, but its future growth will depend on maintaining customer interest, improving international performance and ensuring that operational changes translate into sustainable profitability.
The Turnaround Depends on Rebuilding the Customer Experience
The central element of Starbucks’ recovery strategy has been a return to the fundamentals of its coffeehouse business. The company has placed greater emphasis on product quality, customer service, store operations and the overall experience of visiting its outlets.
This approach reflects a problem that Starbucks has faced in recent years. As the company expanded its product range and digital ordering systems, concerns emerged about operational complexity, customer waiting times and the consistency of service. A coffeehouse that becomes difficult to navigate or takes too long to fulfil orders risks losing the convenience and experience that originally attracted customers.
The company’s Back to Starbucks strategy seeks to address these weaknesses. It includes improving staffing, simplifying operations, enhancing the customer experience and making stores more welcoming. The objective is not simply to increase the number of beverages sold but to rebuild the reasons customers choose Starbucks over competing coffee chains and independent cafes.
The latest sales figures suggest that the strategy is having a positive effect. Global comparable sales increased 7.2%, with North America performing particularly well. However, comparable sales growth includes both changes in customer traffic and changes in the average amount spent per transaction. This distinction matters because higher sales do not necessarily mean that more people are visiting stores.
In the United States, comparable transactions increased 2.4%, while average spending rose 5.2%. This indicates that the improvement came from both stronger customer activity and higher spending per visit.
Pricing and Product Mix Are Supporting Revenue Growth
Higher average customer spending has been an important contributor to Starbucks’ recent performance. The company has benefited from product mix, pricing and increased food purchases alongside beverages. Seasonal products and customised drinks can encourage customers to spend more, while food offerings provide an additional source of revenue during different parts of the day.
The growing interest in afternoon visits has also created an opportunity for Starbucks. Coffeehouse businesses traditionally depend heavily on morning demand, particularly from customers purchasing drinks before work. Attracting customers during the afternoon can help increase store utilisation and improve the return on existing locations.
Matcha products have emerged as another source of customer interest, with the category becoming a substantial business for Starbucks. The appeal of these drinks reflects changing consumer preferences and the popularity of beverages that offer alternatives to conventional coffee.
However, higher average spending also needs to be examined against consumer affordability. When customers pay more because of price increases, comparable sales can rise without an equivalent improvement in demand. If prices increase too quickly, some customers may reduce visit frequency or move towards cheaper alternatives.
Starbucks must therefore maintain a balance between pricing and customer satisfaction. Its latest transaction growth in North America provides encouraging evidence that the improvement is not based entirely on higher prices, but sustaining that momentum will require consistent product quality and service.
China Shows Why International Growth Is More Complicated
The decline in consolidated revenue during the quarter should not be interpreted simply as a deterioration in Starbucks’ underlying business. The company transferred its retail operations in China to a licensed joint venture structure, retaining a 40% stake. As a result, the revenue generated by those stores is now reflected differently in the company’s financial statements.
The decision reflects the commercial challenges facing Starbucks in China. The market has become increasingly competitive, with local coffee chains offering lower prices and expanding rapidly. Chinese consumers have access to a growing range of coffee brands, making it harder for Starbucks to rely on its premium international positioning alone.
The company needs to maintain its brand appeal while responding to local competition and changing consumer spending patterns. Its joint venture structure allows it to remain involved in the Chinese market without operating every store directly. This can reduce the amount of capital required for expansion, although it also changes the relationship between store-level performance and reported revenue.
The international figures also reveal that the recovery is uneven. Comparable sales outside North America increased only 0.9%, while transactions declined 2.8%. Higher average spending helped offset weaker customer traffic, but this is not a strong foundation for long-term growth if fewer customers are visiting stores.
Starbucks therefore faces a different challenge in international markets compared with the United States. It needs to understand local competition, consumer preferences and pricing conditions rather than assuming that improvements in its domestic business will automatically translate into other regions.
Store Closures and Operational Discipline Are Part of the Strategy
Starbucks has also been adjusting its store network as part of its turnaround efforts. The company closed 250 coffeehouses during the fourth quarter under its restructuring programme, while continuing to open new locations in other markets.
Store closures do not necessarily indicate that the entire business is contracting. Retail companies regularly reassess locations based on profitability, customer traffic, rental expenses and the potential for future growth. Maintaining stores that consistently underperform can weaken overall margins and divert resources from more productive locations.
The challenge is to distinguish between outlets that are genuinely no longer commercially viable and locations that could improve through better staffing, product availability or operational changes. Closing too many stores may reduce market presence, while retaining unprofitable locations can place pressure on earnings.
Starbucks reported significant improvement in operating margins during the quarter. Its GAAP operating margin increased to 10.8%, while the non-GAAP margin reached 14%. Lower restructuring costs and improved sales leverage contributed to the improvement.
These figures suggest that the company is beginning to benefit from a combination of stronger sales and better cost management. However, the sustainability of margin improvement will depend on whether operational efficiency can be maintained without reducing the quality of customer service.
Higher Earnings Do Not Remove the Need for Further Improvement
Starbucks’ earnings performance was considerably stronger than a year earlier. Full-year fiscal 2026 comparable sales increased 6.2%, while full-year revenue rose 2% to $37.9 billion. Adjusted earnings per share increased 28% to $2.72.
The company has also provided guidance for fiscal 2027, expecting North American comparable sales growth of approximately 4% and adjusted earnings per share between $3.15 and $3.25. However, it expects consolidated revenue to decline by approximately 1%, partly because of the accounting impact of the China transaction and the additional week in the coming financial year.
The difference between comparable sales, reported revenue and earnings is important when assessing the turnaround. Stronger sales at existing locations can improve profitability even when the total number of directly operated stores changes. At the same time, the transition towards licensed operations can affect how revenue is reported.
Investors will therefore need to look beyond headline growth figures and examine whether Starbucks is generating stronger customer traffic, improving margins and maintaining its competitive position.
The latest results provide evidence that the turnaround has moved beyond initial restructuring efforts. But the company still needs to demonstrate that improvements in North America can be sustained and that international markets can deliver stronger customer growth. Its recovery will ultimately depend on whether customers continue returning to its stores because of the experience and products, rather than simply responding to promotions or temporary changes in spending.
(Adapted from Reuetrs.com)
