Shares of Starbucks rose approximately 2% after investment firm William Blair upgraded its rating to Outperform. The firm highlighted Starbucks's potential to achieve its first U.S. same-store sales increase since fiscal year 2023, projecting a 2% gain in consolidated comparable sales for the December quarter. This uplift includes a corresponding 2% increase attributed to North America, signaling a halt to two consecutive years of traffic decline and suggesting an inflection point in customer engagement.
William Blair expects this improvement in comparable sales to pave the way for Starbucks to return to positive full-year same-store sales growth by fiscal 2026. Alongside sales expectations, the firm updated its fiscal first-quarter adjusted earnings per share (EPS) forecast slightly upward to $0.61. While this figure reflects an 11% decrease year-over-year, it remains ahead of consensus estimates.
On the international front, William Blair anticipates a 2% comparable sales increase during the quarter, including a 1% gain in China. This forecast suggests performance enhancement over a two-year horizon despite facing challenging comparative periods.
However, William Blair underscores that investors' primary concern remains Starbucks's margin outlook. Operating margins in the Americas declined substantially, falling to 13.4% in fiscal 2025 from 20.8% two years prior. This decline is exacerbated by plans to add roughly $500 million in incremental labor costs over fiscal 2026. For the December quarter, a further contraction in operating margin by 110 basis points to 10.8% is anticipated, a reflection of ongoing investments in labor and a broader strategic reset.
At Starbucks's investor day scheduled for January 29, management is expected to present a multiyear recovery strategy incorporating stable comparable sales growth complemented by initiatives aiming for productivity enhancements and reductions in overhead expenses. William Blair envisions a scenario with approximately 3% annual global unit growth combined with low-single-digit comparable sales increases, steering consolidated operating margins toward levels seen in fiscal 2023 by 2030.
This recovery pathway implies a compound annual growth rate (CAGR) in EPS ranging from 15% to 20% over the ensuing five years. However, fiscal 2026 is projected to underperform due to increased labor expenditures. William Blair also noted that the stock's roughly 15% appreciation this year probably reflects optimism regarding Starbucks's improving performance outlook, but maintains that further upside remains medium-term. The anticipated trajectory involves sales recovery preceding margin and profit gains, with heightened momentum expected from 2027 onward.
Starbucks shares experienced a 2% increase following William Blair's upgrade to Outperform, based on expectations of the company's first U.S. same-store sales growth in two years. Despite this promising revenue development, margin improvements are forecasted to take multiple years due to rising labor costs and strategic investments. William Blair projects gradual sales increases globally and a recovery in operating margins by 2030, amid cautious short-term earnings outlooks.
Key Points
- William Blair upgraded Starbucks to Outperform citing a projected 2% U.S. same-store sales increase, marking the first positive domestic comp growth in two years.
- Operating margins are under pressure, with Americas margin dropping from 20.8% to 13.4% over two years and planned additional labor costs of $500 million in fiscal 2026.
- A multiyear recovery plan is anticipated, targeting low-single-digit sales growth, productivity gains, and margin recovery by 2030, with EPS expected to grow at a 15%-20% CAGR over five years.
Risks
- Despite sales growth expectations, margin contraction due to increased labor expenses poses a short- to medium-term profitability risk for Starbucks.
- Sustained traffic declines in previous years signal potential volatility in consumer behavior impacting sales recovery.
- International markets, including China, face challenging comparative periods that may limit upside despite projected modest growth.