Starbucks Q1 Financials Show Mixed Results Amid Challenges

Starbucks Q1 results reveal stagnant sales and declining net income. Investors should consider potential stock volatility as CEO strategies take shape.

Date: 07-02-2025

AI Rating: 5

Summary of Earnings Performance
Starbucks reported net sales of $9.4 billion, unchanged year-over-year. However, net income fell to $780.8 million ($0.69 per share) from $1.02 billion ($0.90 per share) in the prior year. This decline indicates pressures on profitability and demand.

Comparable Sales and Market Stability
The company faced significant challenges, including a 4% drop in same-store sales and an 8% decline in store traffic in the U.S., marking four consecutive quarterly declines. In China, same-store sales also decreased by 6%, suggesting that ongoing difficulties in these key markets may affect future growth and investor confidence. Moreover, the ongoing increase in operating expenses, which surged and compressed margins by 390 basis points to 11.9% (well below the ten-year average of 15.1%), raises concerns about profitability, especially amidst rising coffee prices.

Future Projections and Valuation
Looking ahead, Starbucks forecasts revenues to reach $37.9 billion for FY 2025 with a 5% year-over-year increase. The anticipated earnings per share of $3.05 implies a valuation of $100 per share based on a P/E multiple of 32.9x, indicating that the current stock price is about 8% higher than this derived valuation. This could create downward pressure on the stock if results do not meet projections.

Investor Outlook
Despite a strong year-to-date stock performance (up 21% to approximately $111), the mixed Q1 results, alongside challenges in traffic and operating margins, suggest volatility ahead for Starbucks’ stock price. Investors may want to monitor strategic implementations under CEO Brian Niccol while being cautious of short-term fluctuations due to current hurdles.

Stocks: SBUX MCD