Starbucks Shares Plunge as Profitability Crisis Deepens

Starbucks delivered a financial shock to investors with its latest quarterly results, revealing a severe profitability collapse despite surprising revenue strength. The coffee giant’s shares faced significant after-hours selling pressure as the market reacted to punishing margin compression that overshadowed top-line performance.

Margin Meltdown Overshadows Modest Sales Recovery

The most alarming development emerged in Starbucks’ profitability metrics. The company’s operating margin experienced a dramatic contraction, plummeting from 14.4% to just 2.9%. Even when adjusted for one-time items, the margin still contracted by a substantial 5 percentage points to 9.4%.

This erosion stems from multiple cost pressures:

• Soaring commodity expenses: Arabica coffee prices surged more than 20% in 2025, following a 70% increase the previous year
• Rising labor costs and trade tariffs
• Expensive restructuring initiatives

Management cautioned investors that elevated coffee prices would continue weighing on margins for at least two more quarters. The stock has declined 6.4% year-to-date and has surrendered 12.3% over the past twelve months.

Should investors sell immediately? Or is it worth buying Starbucks?

Operational Turnaround Shows Cracks

For the first time in seven quarters, Starbucks posted modest growth in comparable store sales, suggesting CEO Brian Niccol’s “Back to Starbucks” initiative is beginning to yield results. However, the recovery remains fragile and uneven across markets:

• Global comparable sales: +1%
• United States: stagnation at previous quarter levels
• International markets: +3%
• China: +2%

The persistent weakness in Starbucks’ home market represents its most significant challenge. Despite the slight overall recovery, average customer spending actually decreased. The company has responded by closing 627 locations, predominantly in North America, signaling a strategic pivot from expansion to efficiency.

China Partnership Offers Potential Lifeline

Amid this challenging backdrop, a potential multibillion-dollar deal could provide financial relief. Boyu Capital is considering acquiring a majority stake in Starbucks’ China operations, with the business valued at over $4 billion.

Market experts maintain a cautiously optimistic “Moderate Buy” rating on the shares. The fundamental question remains whether Starbucks can convert its modest sales improvement into sustainable profitability. Current financial metrics provide a clear answer: not yet. The path to recovery appears demanding, with the company navigating between cost pressures and growth initiatives in an increasingly competitive landscape.