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Starbucks posts 9% revenue growth, 180bp margin gain as China JV closes and U.S. traffic rebounds
Filed April 28, 2026 · Period ending March 29, 2026 · Compared to 10-Q Apr 29, 2025 · ~2 min read
Key Changes
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China joint venture closed March 30, 2026: 7,991 company-operated stores converted to licensed model with Starbucks retaining 40% equity stake. Starting Q3 FY2026, China will report as equity method income rather than consolidated revenue, lowering top-line but improving margins.
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U.S. comparable transactions reversed from -4% (Q2 FY2025) to +4.3% (Q2 FY2026), driving 9% consolidated revenue growth and 6.2% global comp sales. Back to Starbucks initiatives successfully restored customer traffic after prior-year declines.
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Operating margin swung from 590bp contraction (Q2 FY2025) to 180bp expansion (Q2 FY2026), reaching 8.7%. Sales leverage and China accounting benefits offset ongoing labor investments, signaling strategy is delivering profitability improvement.
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Effective tax rate spiked to 46.1% from 23.6% due to $274M one-time charge for releasing indefinite reinvestment assertions on China earnings. Going forward, foreign earnings can be repatriated without material incremental tax, improving capital allocation flexibility.
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North America margin contracted 330bp to 11% in first half FY2026, driven by labor investments (260bp) and tariff/coffee inflation (120bp), partially offset by sales leverage (180bp). Contraction rate improved from 560bp in prior year, indicating stabilization despite cost pressures.
Summary
Starbucks delivered a decisive operational turnaround in Q2 FY2026, with revenue growth accelerating to 9% and operating margins expanding 180 basis points after a year of contraction. The Back to Starbucks strategy—focused on labor investments, customer experience, and portfolio rationalization—successfully reversed U.S. traffic declines, with comparable transactions swinging from -4% to +4.3% year-over-year. Store closures under the FY2025 restructuring are substantially complete, allowing management to shift focus from stabilization to growth.The China joint venture transaction closed March 30, 2026, fundamentally reshaping the company's financial profile. Starting Q3 FY2026, 7,991 former company-operated stores will report as licensed operations, with Starbucks recognizing equity method income on its 40% stake rather than consolidated revenues and expenses. This will lower reported top-line but improve operating margins. A related $274 million one-time tax charge hit Q1-Q2 results, but the release of indefinite reinvestment assertions now allows tax-efficient repatriation of foreign earnings.
Key watch items: North America margins remain under pressure from labor investments and tariff/coffee inflation (330bp contraction despite improving sales leverage), and management expects some macroeconomic relief in the second half. A potential IEEPA tariff refund following a February 2026 Supreme Court ruling could provide upside to product costs, though timing and amount are uncertain. International margins expanded 450bp, benefiting from sales leverage and China accounting treatment. Next quarter will be the first to reflect the new China JV structure and test whether U.S. traffic momentum sustains.
Section-by-Section Diff
MD&A
~11,300 words (+17% vs prior)Q2 FY2026 shows strong revenue growth (9%) and margin expansion (180bp) driven by Back to Starbucks initiatives; China JV closed Q3 FY2026.
Added in current filing · verify on EDGAR →
On March 30, 2026, in the third quarter of fiscal 2026, the transaction subsequently closed, and under the terms of the agreement, funds managed by Boyu Capital acquired a 60% stake in Starbucks China retail operations, while Starbucks retained a 40% ownership interest and continues to own and license the brand and intellectual property to the joint venture. The joint venture oversees 7,991 company-operated coffeehouses, which transitioned to a licensed operating model, with a shared long-term aspiration to grow to as many as 20,000 locations over time.
The China joint venture transaction closed on March 30, 2026, converting 7,991 company-operated stores to a licensed model. Starbucks retained 40% ownership and will recognize equity method income rather than direct revenues/expenses starting Q3 FY2026. This fundamentally changes the financial reporting structure for China operations and will result in lower consolidated revenues but higher operating margins going forward.
Added in current filing · verify on EDGAR →
In the second quarter of fiscal 2026, management approved a restructuring plan to relocate certain functions of our support organization to an additional office in Nashville, Tennessee, further supporting the Company’s “Back to Starbucks” strategy and the intention to establish a more strategic presence in the Southeast region of the United States. Our new office in Nashville reflects three key advantages: proximity to key suppliers, access to a deep and growing talent pool in the region, notably in technology, and alignment with where we expect future coffeehouse growth.
A new restructuring plan was approved in Q2 FY2026 to relocate support functions to Nashville, Tennessee. This represents an additional restructuring initiative beyond the FY2025 support organization simplification, aimed at strategic positioning near suppliers, talent pools, and growth markets. The financial impact and timeline are not yet disclosed.
Previous filing · verify on EDGAR →
During the second quarter of fiscal 2025, consolidated net revenues increased 2% to $8.8 billion compared to $8.6 billion in the second quarter of fiscal 2024, primarily driven by incremental revenues from net new company-operated store openings over the past 12 months, partially offset by unfavorable foreign currency translation impacts and a decrease in global comparable store sales. During the quarter ended March 30, 2025, our global comparable store sales declined 1%, primarily driven by a 2% decline in the U.S. market, partially offset by a 2% improvement internationally. Specific to the U.S. market, the decrease in comparable store sales was driven by a 4% decrease in comparable transactions, partially offset by a 3% increase in average ticket, primarily due to annualization of pricing and fewer discounts in the current year.
Current filing · verify on EDGAR →
During the second quarter of fiscal 2026, consolidated net revenues increased 9% to $9.5 billion compared to $8.8 billion in the second quarter of fiscal 2025, primarily due to a 6.2% increase in global comparable store sales, driven by a 7.1% increase in the U.S. market and a 2.6% increase internationally. Also contributing to the increase was higher revenues from the Global Coffee Alliance and our licensed store business. Specific to the U.S. market, the increase in comparable store sales was driven by a 4.3% increase in comparable transactions and a 2.7% increase in average ticket, primarily driven by higher delivery sales in the current year.
Q2 FY2026 showed a dramatic turnaround from Q2 FY2025: revenue growth accelerated from 2% to 9%, and global comparable store sales swung from -1% to +6.2%. U.S. comparable transactions reversed from -4% to +4.3%, indicating the Back to Starbucks initiatives successfully drove customer traffic recovery. This represents a significant operational inflection point.
Previous filing · verify on EDGAR →
Consolidated operating margin contracted 590 basis points from the prior year to 6.9%, primarily driven by deleverage, additional labor, largely in support of “Back to Starbucks,” and restructuring costs related to simplifying our global support organization.
Current filing · verify on EDGAR →
Consolidated operating margin expanded 180 basis points from the prior year to 8.7%, primarily driven by sales leverage and lower store operating and depreciation and amortization costs after classifying assets for Starbucks retail operations in China as held for sale, partially offset by labor investments largely in support of “Back to Starbucks.”
Operating margin swung from a 590bp contraction in Q2 FY2025 to a 180bp expansion in Q2 FY2026. The improvement was driven by sales leverage and accounting benefits from classifying China assets as held for sale (which ceased depreciation), partially offset by ongoing labor investments. This demonstrates the Back to Starbucks strategy is beginning to deliver margin improvement despite continued investment spending.
Previous filing · verify on EDGAR →
The effective tax rate for the first two quarters ended March 30, 2025 was 23.6% compared to 24.2% for the same period in fiscal 2024. The decrease was primarily due to the discrete impact of a tax status change for a certain foreign entity (approximately 200 basis points), partially offset by lapping the election of an alternative tax approach in a certain foreign jurisdiction that resulted in a tax benefit in the second quarter of fiscal 2024 (approximately 130 basis points).
Current filing · verify on EDGAR →
The effective tax rate for the two quarters ended March 29, 2026, was 46.1% compared to 23.6% for the same period in fiscal 2025. The increase was primarily due to the $273 million discrete impact of changes in indefinite reinvestment assertions as a result of classifying Starbucks retail operations in China as held for sale in the first quarter of fiscal 2026 (approximately 1,830 basis points), lapping the discrete impact of a tax status change for a certain foreign entity in the first quarter of fiscal 2025 (approximately 200 basis points), and the impact of reorganizing certain entities in China (approximately 130 basis points).
The effective tax rate nearly doubled from 23.6% to 46.1% in the first two quarters of FY2026, driven by a $273 million discrete charge related to releasing indefinite reinvestment assertions for China earnings upon classifying the disposal group as held for sale. This is a one-time charge associated with the China JV transaction and does not reflect ongoing tax rates, but it significantly impacted reported net earnings.
Previous filing · verify on EDGAR →
North America operating income for the first two quarters of fiscal 2025 decreased 28% to $1.9 billion, compared to $2.7 billion in the first two quarters of fiscal 2024. Operating margin contracted 560 basis points to 14.2%, primarily driven by deleverage (approximately 330 basis points) and additional labor, largely in support of “Back to Starbucks” (approximately 190 basis points).
Current filing · verify on EDGAR →
North America operating income for the first two quarters of fiscal 2026 decreased 20% to $1.5 billion, compared to $1.9 billion in the first two quarters of fiscal 2025. Operating margin contracted 330 basis points to 11%, primarily driven by labor investments largely in support of “Back to Starbucks” (approximately 260 basis points), inflationary pressures (approximately 120 basis points), primarily driven by tariffs and elevated coffee pricing, and product mix shift (40 basis points), partially offset by sales leverage (180 basis points).
North America operating margin contracted 330bp in the first half of FY2026 (to 11%) versus 560bp in the first half of FY2025 (to 14.2%). While margin pressure continued, the rate of contraction slowed significantly. Labor investments and inflationary pressures (tariffs, coffee pricing) were the primary headwinds, partially offset by improving sales leverage as comparable store sales turned positive.
Previous filing · verify on EDGAR →
International operating income for the first two quarters of fiscal 2025 decreased 4% to $454 million, compared to $475 million in the first two quarters of fiscal 2024. Operating margin contracted 110 basis points to 12.1%, primarily due to increased promotional activity (approximately 190 basis points), partially offset by leverage (approximately 80 basis points).
Current filing · verify on EDGAR →
International operating income for the first two quarters of fiscal 2026 increased 50% to $681 million, compared to $454 million in the first two quarters of fiscal 2025. Operating margin expanded 450 basis points to 17%, primarily due to sales leverage (420 basis points) and lower store operating and depreciation and amortization costs after classifying assets for Starbucks retail operations in China as held for sale (approximately 340 basis points), partially offset by inflationary pressures (approximately 160 basis points), primarily driven by elevated coffee pricing, and restructuring costs associated with the closure of coffeehouses (approximately 90 basis points).
International operating margin swung from a 110bp contraction in the first half of FY2025 to a 450bp expansion in the first half of FY2026. The improvement was driven by sales leverage and accounting benefits from ceasing depreciation on China assets held for sale (340bp). This demonstrates strong operational improvement in International markets outside of the accounting benefit.
Previous filing · verify on EDGAR →
Restructuring was $116 million, largely due to costs associated with simplifying our support organization, primarily severance costs, in support of our “Back to Starbucks” strategy.
Current filing · verify on EDGAR →
Restructuring and impairments decreased $3 million, largely due to lapping costs associated with the simplification of our support organization in the prior year, partially offset by costs associated with the closure of coffeehouses in the current year.
Restructuring charges declined from $116 million in the first half of FY2025 to $113 million in the first half of FY2026. The FY2025 charges were primarily severance costs for support organization simplification, while FY2026 charges include coffeehouse closures and the new Nashville relocation plan. The year-over-year decline indicates the major support organization restructuring is largely complete.
Added in current filing · verify on EDGAR →
In the first quarter of fiscal 2026, we released all of our remaining indefinite reinvestment assertions and recorded a discrete tax expense of $266 million, which was subsequently increased in the second quarter of fiscal 2026 by $8 million. In future periods, any foreign earnings may be repatriated at management’s discretion without any material, incremental tax consequences.
Starbucks released all remaining indefinite reinvestment assertions in Q1 FY2026, recording a $274 million discrete tax charge ($266M in Q1, $8M in Q2). This was triggered by classifying China operations as held for sale. Going forward, foreign earnings can be repatriated without material incremental tax consequences, providing greater financial flexibility for capital allocation.
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On February 20, 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ( IEEPA) were unlawful. Starbucks imports were previously subject to such tariffs under IEEPA. Effective April 20, 2026, the U.S. Customs and Border Protection launched a platform for importers of record to begin submitting IEEPA tariff refund requests. As the timing and amount of any recovery are uncertain, we are unable to estimate the financial effects, if any, at this time. We will continue to evaluate new information and will recognize the refund when the right to receive any amounts becomes probable and estimable.
A U.S. Supreme Court ruling in February 2026 declared IEEPA tariffs unlawful, and a refund platform launched in April 2026. Starbucks was subject to these tariffs and may receive refunds, but the amount and timing are uncertain. This represents potential upside to product and distribution costs, though not yet quantifiable or recognized.
Previous filing · verify on EDGAR →
We expect that the balance of this fiscal year will bring some challenges as we navigate a dynamic macroeconomic environment, including tariffs and volatile coffee prices. In each case, we are actively monitoring and taking actions where necessary to mitigate potential financial impacts, including further diversifying and redirecting coffee shipments to minimize tariffs, and, with respect to shifting coffee prices, opportunistically building our supply and securing pricing. We are also evaluating our global store portfolio, new store pipeline, and operations, which may result in additional restructuring charges in the near term. Going forward, we will focus on greater new store returns and enhancing the coffeehouse experience for both our partners and customers, while also reducing new store build costs. Despite the challenging macroeconomic environment, we continue to feel confident in our “Back to Starbucks” strategy and will continue making intentional investments to stabilize the business and return to long-term, profitable growth.
Current filing · verify on EDGAR →
As the fiscal year progresses, we will continue to refine and execute our “Back to Starbucks” initiatives to continue topline momentum and build sales leverage while investing in our cafes and customer experience, delivering seamless digital experiences, strengthening our supply chain, and enabling technological efficiencies. We will continue to amplify our brand, engaging with our customers authentically and distinctly as Starbucks, through broad-based marketing, with the goal of deepening brand loyalty and affinity. As our international business shifts toward a more predominantly licensed model, we will look toward strengthening how we support our licensed business partners. Our approach will strive to bring decision-making closer to customers and local markets, while enabling us to focus on establishing standards and best practices. We expect certain macroeconomic pressures to alleviate in the second half of the fiscal year, including impacts on product and distribution costs from tariffs and elevated coffee pricing.
The tone shifted from cautious ("challenges," "dynamic macroeconomic environment," "may result in additional restructuring charges") in FY2025 to more optimistic in FY2026 ("continue topline momentum," "expect certain macroeconomic pressures to alleviate"). The current filing emphasizes execution and growth rather than stabilization, reflecting improved operational performance and confidence in the strategy.
Added in current filing · verify on EDGAR →
In support of our “Back to Starbucks” strategy, as part of the restructuring plan announced in the fourth quarter of fiscal 2025, we continued to close stores that did not demonstrate a viable path to profitability or meet our standards of delivering a warm, welcoming space for our customers and partners. Those store closures in North America were substantially completed in fiscal 2025, and the majority of those International store closures were completed in the first quarter of fiscal 2026.
The current filing reports that North America store closures under the FY2025 restructuring plan were substantially completed in FY2025, and most International closures were completed in Q1 FY2026. This indicates the portfolio rationalization is largely behind the company, allowing focus to shift to growth from a healthier store base. The baseline filing did not provide this completion status.
Generated by AI · May 22, 2026 5:33 PM