Starbucks faces slowdown in Q1 FY25 amid ‘Back to Starbucks’ turnaround strategy

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Starbucks Corporation (NASDAQ: SBUX) has reported its first-quarter fiscal year 2025 financial results, revealing stagnant revenue growth and declining earnings as the company moves forward with its “Back to Starbucks” strategy. While global net revenues remained flat at $9.4 billion, comparable store sales dropped 4%, reflecting weaker consumer traffic despite a slight increase in average ticket prices.

The company’s turnaround efforts come amid shifting consumer habits, operational challenges, and competitive pressures. CEO Brian Niccol remains confident that ongoing investments in store operations, brand positioning, and partner benefits will restore long-term growth. However, early results indicate that Starbucks faces a steep road to recovery, with profitability pressured by increased spending on labor and strategic adjustments.

Why Did Starbucks Report a Sales Decline in Q1 FY25?

Despite its global footprint of 40,576 stores, Starbucks struggled to drive comparable sales growth in Q1 FY25. The company reported a 6% decline in customer transactions, partially offset by a 3% rise in average ticket size. The market saw an 8% drop in transactions, leading to a 4% decline in comparable store sales, even as average ticket prices rose by 4%.

The international segment mirrored this trend, with a 4% sales decline, including a 6% drop in , one of Starbucks’ most critical growth regions. Weaker performance in China was driven by a 2% decline in both average ticket prices and customer transactions, signaling softening demand in key international markets.

Starbucks also faces challenges in navigating post-pandemic consumer behavior, as competition from independent coffee shops and fast-food chains intensifies. The company’s ability to differentiate its brand, improve store operations, and maintain customer engagement will be crucial in determining whether the Back to Starbucks strategy can drive sustained recovery.

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How Is the ‘Back to Starbucks’ Strategy Affecting Profitability?

Starbucks’ operating margin contracted by 390 basis points, falling to 11.9%, due to increased investment in store partner wages, benefits, and expanded work hours. The company also eliminated the surcharge for non-dairy milk, aligning with its sustainability and inclusivity goals but further pressuring margins.

Despite these headwinds, Starbucks Rewards loyalty program membership in the U.S. grew to 34.6 million, up 1% year-over-year and 2% quarter-over-quarter. Additionally, U.S. Starbucks card loads reached $3.5 billion, reaffirming the brand’s strong foothold in the digital payments and gift card market.

While the “Back to Starbucks” strategy is expected to improve long-term brand positioning, the near-term impact has been a significant increase in operating expenses, raising concerns about profitability recovery in the coming quarters.

Can Starbucks Regain Its Momentum in North America?

North America remains Starbucks’ most significant revenue driver, but performance in this segment has weakened. In Q1 FY25, revenue from the region declined 1% year-over-year to $7.1 billion, primarily due to the decline in customer transactions and a slowdown in the licensed store business.

Operating income for the region dropped 22%, with margins contracting 470 basis points to 16.7%. The company cited higher labor costs and operational investments as the primary reasons for this decline. Although pricing adjustments and supply chain efficiencies helped offset some of the financial strain, the company still faces a challenging competitive landscape.

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As Starbucks continues to refine its customer experience, menu offerings, and store efficiency, it will need to balance investment spending with profitability goals to sustain long-term growth.

How Is Starbucks Performing in International Markets?

Internationally, Starbucks showed slight revenue growth, increasing 1% year-over-year to $1.87 billion, driven by store expansion and acquisitions. However, comparable store sales declined 4%, with China’s performance particularly weak.

China, which accounts for 7,685 stores in Starbucks’ global portfolio, recorded a 6% drop in comparable sales, reflecting ongoing economic pressures and evolving consumer preferences.

Starbucks’ international operating income declined by 2%, with margins narrowing to 12.7%. Increased promotional activities and wage investments contributed to margin compression, though efficiencies in the supply chain and store operations provided some relief.

With aggressive global expansion plans, including entry into new markets and digital growth initiatives, Starbucks remains optimistic about its international business segment’s long-term potential. However, near-term headwinds suggest that consumer engagement strategies and localized offerings will play a crucial role in revitalizing sales.

What’s Next for Starbucks Under Its Revamped Strategy?

As Starbucks navigates its turnaround, the company has unveiled several strategic initiatives aimed at strengthening its brand and operational framework:

  • Enhanced Employee Benefits: Starbucks is doubling paid parental leave for U.S. retail employees working 20+ hours per week, starting in March 2025.
  • New Mission Statement & Customer Promise: The company has redefined its corporate mission and introduced a coffeehouse code of conduct to reinforce brand identity and improve the in-store experience.
  • Restructuring Corporate Support: Starbucks is streamlining its corporate operations, ensuring greater alignment with store-level priorities.
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Additionally, Starbucks has undergone key leadership changes:

  • , chair of Starbucks’ Board of Directors, announced she will not seek re-election in 2025.
  • , chairwoman of Starbucks China, retired after 25 years with the company.

Starbucks also reaffirmed its commitment to shareholder value, declaring a quarterly dividend of $0.61 per share, payable on February 28, 2025. This marks 59 consecutive quarters of dividend payouts, underscoring the company’s long-term financial resilience.

Will Starbucks Recover in the Second Half of FY25?

CEO Brian Niccol remains optimistic, stating that the Back to Starbucks strategy is designed to address core operational challenges and reignite brand loyalty. While early indicators show ongoing financial strain, Starbucks is betting on its investments in customer experience, digital engagement, and employee support to drive future growth.

The coming quarters will be crucial in determining whether Starbucks can reverse declining sales trends and restore profitability. Investors and analysts will be closely watching how the company balances cost management with its transformation efforts to position itself for a stronger second half of FY25.


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