Starbucks (SBUX) Beats Q1 Estimates, But Is It Justified?

Starbucks (SBUX) posted a modest earnings beat in its first-quarter report for fiscal 2025, delivering $0.69 per share versus the consensus estimate of $0.66. A 4.55% surprise might look encouraging at first glance, but a deeper analysis raises questions about how meaningful this "beat" really is.

Starbucks Earnings

While Starbucks surpassed expectations, key figures we wanted to show.

• Last year's Q1 EPS was $0.90, meaning earnings fell 23.3% year-over-year. So, is this actually a positive earnings report, or just an example of how analysts set the bar low enough for an easy jump over it?
• Revenue tells a similar story. At $9.4 billion, sales technically beat the consensus estimate by a marginal 1.02%. However, this is still slightly lower than last year’s $9.43 billion, indicating stagnant growth. If a company reports lower revenues and lower earnings than a year ago, is this really a strong quarter?

Starbucks Admits Business Is Declining

Adding to concerns, Starbucks itself acknowledged business continued to slide. Profit fell 23% compared to last year, reflecting the impact of store renovations and other costly restructuring efforts. Same-store sales dropped 4% globally and in the U.S., marking the fourth consecutive quarterly decline.

CEO Brian Niccol framed the company’s situation as "one quarter into our turnaround", implying Starbucks is still very much in damage-control mode. While some improvements in morning traffic and customer return rates were noted, challenges remain—customers are frustrated with long wait times, high prices, and overwhelming mobile orders.

Stock Price vs. Fundamentals

Despite declining earnings, Starbucks' stock has gained 9.6% in 2025, easily outpacing the SP500’s 2.2% rise. But is this gain backed by actual business strength, or by market enthusiasm untethered from reality? Forward-looking estimates for the next quarter—EPS of $0.57 on $8.79 billion in revenue—show further expected declines.

Coffee prices are also rising significantly, which Starbucks warned will weigh on future earnings. The company even suspended its financial guidance in October, a move that often signals uncertainty or anticipated struggles.

Starbucks Long-Term Performance

Before celebrating any earnings surprise, you should ask: how frequently does the company actually exceed expectations? In the past four quarters, Starbucks has only beaten EPS estimates once—hardly an inspiring track record.

Earnings estimate revisions are a strong predictor of stock movements, and before this report, the revisions for Starbucks were unfavorable—meaning analysts had already lowered expectations. Starbucks may have "beaten" these reduced estimates, but that doesn’t change the bigger picture of deteriorating fundamentals.

Adding to concerns, Zacks maintains a Rank #4 (Sell) rating on Starbucks, indicating expectations of underperformance. If this earnings beat were truly meaningful, why would a reputable ranking system still signal weakness ahead?

Operational Changes: Is This Enough?

There were implemented changes to Starbucks operations, including

• bringing back self-service condiment bars,
• free coffee refills,
• and limiting dining rooms and bathrooms to paying customers
• also there are plans to trim food and drink options by 30% to simplify operations and reduce order delays.

While these changes may help enhance the in-store experience, they do not address underlying demand concerns. The fact that Starbucks is closing stores while aiming to double its U.S. footprint suggests an inefficient store network rather than overall growth.

The broader Retail - Restaurants industry ranks in the top 20% of Zacks’ categories, meaning that it's generally seen as a strong sector. But Starbucks doesn’t appear to be benefiting from industry-wide strength. Comparisons with Domino’s Pizza (DPZ), which expects 10.5% EPS growth, further highlight Starbucks’ struggles.

Takeaway

At first glance, Starbucks' Q1 earnings seem to paint a positive picture—until you realize revenue is down, EPS is down significantly, and analysts had already lowered expectations to a beatable level. Meanwhile, a "Sell" rating suggests professional investors are skeptical about Starbucks’ near-term prospects.

Starbucks is spending hundreds of millions on revamps while signaling future layoffs, rising costs, and ongoing structural weaknesses. Niccol himself has already been compensated $96 million—a move you should scrutinize amid declining store sales.

Stock performance doesn’t always align with fundamentals, and Starbucks' 9.6% YTD gain could be running ahead of reality. This earnings report should be a wake-up call rather than a reason for celebration.