Key Points
After two years of declines, foot traffic turned positive for this popular beverage chain in the latest quarter.
Management is partnering with a local investment group to accelerate success in the world’s second-biggest economy.
Profitability has been strained, but Wall Street sees better days ahead.
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Continue reading to learn more about this business, which investors will certainly be familiar with.
Image source: Starbucks.
1. Returning to positive foot traffic
During the first quarter of fiscal 2026 (ended Dec. 28), Starbucks(NASDAQ: SBUX) reported same-store sales growth of 4%. Even better, the company told investors that foot traffic globally was up 3% year over year. This came after two years of declining traffic.
For any restaurant, this is obviously an encouraging trend. It's a sign that Starbucks is heading in the right direction.
"Both non-Rewards customers grew transactions and rewards customers grew transactions," CEO Brian Niccol said on the Q1 2026 earnings call. "People came back to the brand, and we also drove engagement or more frequency with our existing customers."
The company expects same-store sales to rise 3% or more in fiscal 2026.
2. A new approach in the world's second biggest economy
In 1999, Starbucks opened its first location in China. It has historically been the company's fastest-growing market. Today, the Asian nation has the second largest economy.
Competition is stiff, though, as local players win over consumers. To expand rapidly and better anticipate and cater to tastes, Starbucks has agreed to enter a joint venture with Boyu Capital, selling a 60% stake to the investment company.
The business is pursuing an asset-light approach in China to respond quickly to a dynamic environment. There are currently about 8,000 Starbucks locations in the country. The long-term goal is to get to 15,000 to 20,000 stores.
3. Margins and earnings are under pressure
As Starbucks works to turn the business around, its profitability is taking a hit. Operating expenses increased by 9.2% in the first quarter, outpacing revenue growth of 5.5%. Besides investing in its labor force, the business is dealing with tariffs and higher coffee prices. As a result, the operating margin declined from 11.9% in Q1 2025 to 9% in the latest quarter.
Management sees the adjusted operating margin expanding in fiscal 2026.
And Wall Street is optimistic. The consensus view is that operating income will increase at a compound annual rate of 16% between fiscal 2025 and fiscal 2028.
Investors interested in this coffee stock are now familiar with its traffic trends, strategy in China, and profit outlook.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.
