UBS Report: Is Starbucks Still Appealing? The Market Awaits These 3 Signals Before Earnings
Among the "Big Three" in U.S. dining stocks, Starbucks has been the worst performer this year—barely up since January and even dipping below $90 in July.
On July 29, Starbucks will release its latest earnings report, and the market isn’t optimistic about this quarter’s results. More critically, investors are shifting to a wait-and-see mode, looking for concrete signs of a "turnaround."
Today, we share insights from UBS’s latest Starbucks report, published on July 20, 2025. The report cuts to the chase:
“While sales momentum has yet to rebound significantly, we’re more focused on Starbucks’ progress in structural reforms.”
In other words, a “flat” earnings report is tolerable, but three key points must be clarified.
1. U.S. Core Market: Store Traffic Still Unstable
Starbucks’ biggest challenge is the persistent pressure on U.S. store traffic, with same-store sales (SSS) likely to decline by about 2% this quarter.
UBS predicts Q3 North America SSS at -2.0%, driven by a 4% drop in transaction volume, partially offset by a 2% increase in average ticket size—a classic case of “price hikes propping up revenue while customer traffic slips.”
Starbucks is aware of this issue. Since early this year, it has rolled out the *Green Apron* operational model, aiming to boost peak-hour efficiency and customer satisfaction.
This reform has reached 2,000 stores and is set to cover one-third of U.S. stores by year-end.
The catch? The market is waiting for hard data, such as, “Are these stores actually seeing sales improvements?” If the upcoming earnings call quantifies the reform’s impact—say, a 3-5% sales lift in revamped stores—it could signal optimism.
2. Profit Pressure Persists, but the Focus Is on the Future
Starbucks’ profitability is also under strain. UBS forecasts a Q3 operating margin of just 11.4%, down 5.3 percentage points from last year. The reasons are clear:
Rising labor costs, especially with the new service model requiring more staff.
High coffee bean prices, with potential 2026 cost increases due to Brazilian export taxes.
This suggests short-term profit declines, but the market’s real focus is Starbucks’ forward guidance—particularly its profit recovery trajectory for 2026 and beyond.
UBS lowered its 2026 EPS forecast from $2.95 to $2.76 but notes that if reforms work and sales rebound, this downgrade is “acceptable.”
3. Where’s the Turnaround? The Market Awaits a “Recovery Signal”
The report’s core statement is:
“We believe sales will hit a positive inflection point in the next quarter (Q4).”
UBS projects Q4 SSS to recover to around 2%, with full-year 2026 SSS expected to reach +3.5%. This optimism hinges on:
- The Green Apron service model taking hold.
- Menu innovation (e.g., protein coffee, secret menu tests).
- Enhanced digital operations (app orders/delivery).
- Store remodels improving customer experience.
In short, Starbucks has traded short-term profit hits for an operational overhaul. If it can prove these reforms aren’t just burning cash, the market may revisit its valuation.
In Closing
Starbucks’ transformation isn’t a radical “overhaul.” Investors’ patience is limited, and the market is watching for three signals:
- Is store traffic stabilizing?
- Are service reforms driving improvements?
- Are sales/profits bottoming out?
In other words, next week’s earnings don’t need to dazzle—but they must inspire hope.