Starbucks Corporation (SBUX Quick QuoteSBUX - Free Report) reported mixed fourth-quarter fiscal 2026 results on Oct. 29, with earnings surpassing the Zacks Consensus Estimate by 9.6%, while revenues missed the same by 1.4%. The company's "Back to Starbucks" efforts supported stronger sales leverage and lower costs, while the shift to a licensed business in China weighed on reported revenues.

Digging Deeper Into SBUX's Fiscal Q4 Results

Starbucks reported adjusted earnings per share (EPS) of 80 cents, up 54% from the prior-year quarter, while revenues of $9.14 billion declined 4.5% year over year. Global comparable sales increased 7.2%, marking the fifth consecutive quarter of growth. U.S. comparable sales rose 7.7%, supported by a 2.4% increase in transactions and a 5.2% rise in average ticket. North America revenues increased 6.3% to $7.33 billion. (Read more: Starbucks Q4 Earnings Beat Estimates on Sales Leverage, Revenues Miss)

For fiscal 2027, Starbucks expects North America comparable sales growth of approximately 4% and non-GAAP consolidated operating margin of 13.5-14%. Management projects adjusted EPS of $3.15-$3.25, representing nearly 18% growth at the midpoint, including a benefit of slightly more than 10 cents from an additional fiscal week.

Shares of Starbucks have gained 27.4% year to date, outperforming the Zacks Retail - Restaurants industry's fall of 1.6%. Industry peers Dutch Bros Inc. (BROS Quick QuoteBROS - Free Report) and McDonald's Corporation (MCD Quick QuoteMCD - Free Report) declined 44.9% and 10.3%, respectively, over the same period, as shown in the chart below.

SBUX YTD Price Performance

Image Source: Zacks Investment Research

With improving coffeehouse execution, growing loyalty engagement and cost efficiencies supporting its earnings recovery, does SBUX offer further upside following its strong share-price performance? Let’s assess.

Coffeehouse Execution Supports Operating Performance

Starbucks’ operating recovery broadened across North America in the fiscal fourth quarter, with more than 80% of company-operated coffeehouses reporting positive comparable sales, up from less than 50% a year earlier. Green Apron Service, Smart Queue refinements and improved operating routines supported throughput and service consistency. Daily deliveries reached nearly 90% of North America company-operated locations, improving product availability.

The company completed more than 1,700 North American coffeehouse upgrades in fiscal 2026, exceeding its target. Upgraded locations recorded transaction gains across dayparts, formats and loyalty groups. Starbucks plans more than 2,000 additional upgrades in fiscal 2027, supporting efforts to strengthen customer engagement and improve sales productivity.

Menu Innovation and Loyalty Support Customer Spending

Espresso, Refreshers, Matcha and bakery offerings supported quarterly sales, while merchandise launches contributed to average ticket growth. The Matcha business exceeded $1 billion in sales, and cold beverage customization and increased food attachment supported afternoon demand.

The number of 90-day active Starbucks Rewards members reached a record 36 million, with members leading transaction and sales growth. Planned functional and zero-sugar beverages, protein-focused offerings and bakery additions are expected to expand purchasing occasions. Beginning in the second quarter of fiscal 2027, Starbucks plans to integrate delivery into its app and extend opportunities to earn and redeem Stars on delivery orders.

Cost Savings and Technology Support Margin Expansion

Starbucks has realized roughly half of its $2 billion gross savings program, with additional benefits expected through fiscal 2028. Savings have initially been concentrated in general and administrative expenses, while product-cost and operating-expense efficiencies are expected to contribute more meaningfully in fiscal 2027 and 2028. Having lapped its initial Green Apron Service labor investments, the company expects a more visible margin contribution from savings.

Planned staffing, scheduling and point-of-sale upgrades are intended to simplify operations and improve labor productivity. Tests involving demand forecasting, ordering and replenishment target improved inventory availability and lower waste. These initiatives complement sales leverage as key drivers of the fiscal 2027 margin outlook.

International Development and Capital Returns Support Growth

Starbucks ended fiscal 2026 with 41,607 coffeehouses, including 23,431 international locations. The company expects approximately 1,200 net new locations in fiscal 2027, including about 1,100 internationally, with China contributing roughly half of international additions. Its increasingly licensed model supports capital-efficient development, with management identifying a long-term opportunity for nearly 40,000 international coffeehouses.

Starbucks increased its quarterly dividend to 63 cents per share, marking its 16th consecutive annual increase, and expects approximately $1 billion in fiscal 2027 share repurchases. Capital expenditures are projected at approximately 5% of revenues, primarily funding coffeehouse upgrades and other Back to Starbucks priorities.

Valuation and Earnings Estimates: What Lies Ahead for SBUX?

Starbucks' valuation reflects expectations for a sustained earnings recovery. SBUX trades at a forward 12-month price-to-sales (P/S) multiple of approximately 3.18, below the industry average of 3.25. Other industry players, such as McDonald's and Dutch Bros, have P/S multiples of approximately 6.78 and 2.36, respectively.

SBUX's P/S Ratio (Forward 12-Month) vs. Industry

Image Source: Zacks Investment Research

Starbucks trades at a modest discount to the industry, but at a premium to Dutch Bros. Sustained earnings growth and progress toward fiscal 2027 margin targets remain important considerations in assessing its valuation.

The Zacks Consensus Estimate for Starbucks' fiscal 2027 earnings implies approximately 18% year-over-year growth. The earnings estimate has increased over the past 30 days, indicating improving analyst confidence in the company's turnaround and profitability outlook.

EPS Trend of SBUX Stock

Image Source: Zacks Investment Research

For comparison, McDonald's earnings are expected to increase approximately 5.5% in calendar 2027, while Dutch Bros' earnings are projected to grow approximately 26.3% during the same period. Starbucks' anticipated earnings recovery, supported by sales leverage and cost savings, provides an encouraging foundation for future growth.

SBUX Stock’s Key Challenges: Revenue Pressure and Execution Risks

Despite improving operating trends, Starbucks faces several challenges that could affect its near-term performance. The transition of its China retail operations to a licensed joint venture continues to weigh on reported revenues. For fiscal 2027, management expects consolidated revenues to decline approximately 1% year over year, despite an anticipated $700 million contribution from an additional fiscal week.

North America revenue growth is also expected to face pressure from recent company-operated coffeehouse closures and a slower pace of new openings. Although these actions are intended to strengthen portfolio profitability, they could limit the company's ability to translate improving comparable sales into consolidated revenue growth.

Higher product and distribution costs are weighing on Starbucks’ profitability. In the fiscal fourth quarter, these pressures, primarily due to product mix, partially offset the benefits of sales leverage and cost savings in North America. Continued cost discipline and supply-chain efficiencies remain important to sustaining margin expansion.

Meanwhile, competition in the beverage category continues to intensify. McDonald's is expanding specialty beverages and reinforcing its value proposition, while Dutch Bros is accelerating shop development and introducing new products to attract customers. These initiatives could increase competition for consumer spending and limit Starbucks' ability to sustain pricing and traffic momentum.

Buy, Sell or Hold SBUX Stock After Q4 Earnings?

Starbucks’ improving comparable sales, margin expansion and cost efficiencies support its earnings recovery, while international growth and upward estimate revisions reinforce its investment appeal. However, reported revenue pressure from China’s transition to a licensed model, limited North American openings, higher product and distribution costs and increased beverage competition warrant a measured approach. These considerations, alongside Starbucks’ Zacks Rank #3 (Hold), favor maintaining existing positions, while prospective investors may prefer to await a more attractive entry point. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.