Bernstein: Starbucks’ margin recovery accelerates: Cost leverage emerges alongside same-store growth

Where did the improvement show up?

In the fourth quarter of fiscal 2026, Starbucks’ global same-store sales rose 7.2% year over year, and consolidated operating margin increased 4.5 percentage points to 14.0% from a year earlier. Adjusted earnings per share were 0.80 dollars, above the market consensus of 0.71 dollars.
U.S. same-store sales rose 7.7%, with transactions up 2.4% and average ticket up 5.2%. About half of the increase in average ticket came from pricing and delivery, with the rest from add-on purchases and product mix.
Store closures and sales transfers together contributed about 2 percentage points to U.S. same-store sales growth: half came from sales transferred to other stores, and half from stores with negative growth leaving the same-store calculation. More than 80% of North American company-operated coffee shops posted positive same-store growth, compared with less than 50% a year earlier.

North American operating margin rose 4.4 percentage points year over year to about 16% in the fourth quarter, helped by same-store sales growth, cost savings and improved operational execution. Cost pressure also eased as labor investments in the earlier Green Apron service program entered the year-over-year comparison base.
Costs per company-operated store rose 3.4% year over year, compared with increases of 10%–11% in the first three quarters. Sales growth coincided with slower cost growth, allowing more incremental revenue to flow through to profit; higher product and distribution costs offset some of the improvement.
The company has achieved more than half of its total cost-savings target of 2 billion dollars. About 50% of the savings achieved came from general and administrative expenses, 30% from operating expenses and 20% from cost of sales; Bernstein sees room for further improvement in the latter two.

The company guides for approximately 4% same-store sales growth at North American company-operated stores, driven more by average ticket than transactions. Sales transfers following store closures and store upgrades will also make a small contribution. Some investors worry that underlying traffic growth may be limited excluding sales transfers.
The company expects a consolidated operating margin of 13.5%–14.0%, an improvement on fiscal 2026 and reaching the lower end of its fiscal 2028 margin framework one year early. Fiscal 2027 earnings-per-share guidance is 3.15–3.25 dollars, above the market consensus of 3.14 dollars.
The extra, 53th week in fiscal 2027 will contribute slightly more than 0.10 dollars in earnings per share; same-store sales growth is calculated on a comparable 52-week basis. The company also plans to repurchase about 1 billion dollars of stock, another factor investors consider when assessing the quality of earnings-per-share growth.
Following the transfer of its China retail business to a joint venture, it will no longer be consolidated. The company expects consolidated net revenue to fall about 1% year over year in fiscal 2027, including approximately 700 million dollars of revenue from the 53th week.

Bernstein favors a more optimistic view: Pricing, product pairings, delivery integration and new products provide multiple sales drivers. Together with the gradual flow-through of cost savings, same-store sales growth could exceed 4.5%, supporting earnings per share above 4 dollars in fiscal 2028.
Starting in the second quarter of fiscal 2027, the company plans to integrate delivery into the Starbucks app, allowing customers to use rewards points and full customization features on delivery orders. As delivery coverage across stores is already close to saturation, management has not assumed that the move will substantially lift same-store sales.
Bernstein maintained its Outperform rating and raised its price target from 110 dollars to 115 dollars. The firm valued the stock using its fiscal 2028 earnings-per-share forecast of 4.00 dollars and a price-to-earnings multiple of about 32, then discounted the result by one year. The report also noted that, at a share price of about 105 dollars, near-term upside is limited.