Starbucks (SBUX, Financial) investors were disappointed with another underwhelming earnings report, highlighting the company's struggles, particularly in boosting store traffic. After a promising 1Q25 where SBUX slightly exceeded EPS and revenue forecasts, the company missed both top and bottom-line expectations in 2Q25. While formal guidance was not provided, Starbucks reiterated its expectation for EPS improvement in the second half of 2025 as the "Back to Starbucks" initiative gains momentum.

• EPS dropped nearly 40% year-over-year to $0.41, significantly missing estimates. This decline was due to weaker-than-expected comparable sales and increased costs from the "Back to Starbucks" plan, causing a 460-basis point plunge in non-GAAP operating margin to 8.2%. The rising costs are mainly due to staffing and investments in store experience and technology.
• CEO Brian Niccol, who took over last September, launched the "Back to Starbucks" initiative to reestablish SBUX as a leading coffeehouse by enhancing customer experience, investing in labor, training, technology, and simplifying the menu. However, the substantial investments have yet to yield significant revenue growth or improved comparable sales, raising questions about when the plan will drive traffic growth and margin expansion.
• SBUX's Q2 comp declines continue a pattern from previous quarters, with negative transaction growth highlighting ongoing traffic challenges. However, there is improvement as global comparable sales decreased by 1% on a 2% drop in transactions, compared to a 4% decrease on a 6% drop last quarter. Similarly, North America comps were down 1% in Q2 with transactions down 4%, versus a 4% decrease in comps and a 6% drop in transactions last quarter.
• In North America, SBUX has relied on price hikes to boost comps, evident by a 3% increase in average ticket in Q2. The concern is that further price increases might face consumer resistance, worsening traffic declines. In China, traffic rose by 4%, but was offset by a 4% decrease in average ticket, as local competitors intensify market pressure and drive prices down.

Despite SBUX's claims that the "Back to Starbucks" initiative is on track, Q2 results show limited evidence of a significant positive impact on traffic or profits. The company continues to face strong headwinds, with declining customer traffic as a primary challenge. While average ticket growth offers some relief, it is not a sustainable long-term growth driver. The reiteration of expected EPS improvement in the second half of the year provides some reassurance, but investor confidence will likely remain shaky until there is meaningful improvement in underlying performance.