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Looking for a jolt from the "Back to Starbucks" turnaround plan, Starbucks' (SBUX) investors were instead served another lackluster earnings report that highlighted the coffee chain's struggles, especially relating to driving traffic to its stores. Following an encouraging 1Q25 earnings report in which SBUX modestly topped EPS and revenue expectations, the company fell short on both the top and bottom-lines in 2Q25. Once again, SBUX refrained from providing formal guidance.

• EPS declined by nearly 40% yr/yr to $0.41, badly missing estimates, as a combination of weaker-than-expected comparable sales and significant increases in costs associated with the "Back to Starbucks" plan caused non-GAAP operating margin to plunge by 460-bps to 8.2%. The increased costs are mostly associated with staffing expenses and increased investments in store experience and technology. 
• Shortly after Brian Niccol took over as CEO last September, he implemented the "Back to Starbucks" initiative, which aims to reestablish SBUX as the premier coffeehouse by enhancing the customer experience, investing in labor, training, and technology, and simplifying the menu. So far, the substantial investments required for the turnaround effort are outweighing the benefits in terms of revenue growth and comps, and many are now wondering when the plan will translate into traffic growth and margin expansion.
• SBUX's Q2 comp declines reveal a continuation from previous quarters with negative transaction growth signaling persistent traffic challenges. However, the trend is improving as global comparable sales decreased by just 1% on a 2% drop in transactions (traffic), compared to last quarter's 4% decrease on a 6% drop in transactions. Likewise, North America comps were down 1% in Q2 with transactions down 4%, versus a 4% decrease in comps last quarter with transactions down 6%.
• In North America, SBUX has leaned on price increases to push comps higher, as illustrated by a 3% increase in average ticket in Q2. The concern, though, is that further price increases could face consumer resistance, potentially exacerbating traffic declines. In China, the opposite trend is unfolding as traffic increased by 4%, offset by a 4% decrease in average ticket. Rising competition in China from local competitors vying for market share is putting downward pressure on prices.

While SBUX maintains that the "Back to Starbucks" initiative is progressing as planned, its Q2 results offer limited tangible evidence of a significant positive impact on traffic or profits. The company is still navigating through strong headwinds, primarily reflected in the ongoing decline in customer traffic. Average ticket growth is providing some relief, but that is not a sustainable long-term growth driver on its own. Overall, investor confidence likely won't be restored until the underlying performance shows meaningful improvement.