Starbucks selloff reflects slow execution on turnaround as costs and traffic pressures persist

What happened

Starbucks shares are down roughly 15% over the past year as rising input and labor costs, soft customer traffic, and a slower-than-hoped turnaround have kept pressure on margins and sentiment. The latest quarter already showed these dynamics, with global and U.S. comps still negative and operating margin compressed to about 10% due to deleverage, elevated coffee prices, and restructuring- and labor-related expenses. Management’s “Back-to-Starbucks” reset—centered on Green Apron Service, menu simplification, value architecture, and support-cost streamlining—remains the core response to these issues but is taking time to translate into visible traffic and margin recovery. The new commentary about “early signs of stabilization” is directionally consistent with management’s tone, suggesting that while trends remain soft, the worst of the deterioration may be passing. Overall, the market appears to be reassessing the stock from a formerly premium multiple toward a more balanced view that still embeds meaningful execution expectations for the turnaround to succeed.

Implication

For investors, the share-price decline modestly improves the risk/reward, but the core issues—negative comps, compressed margins, and execution risk around the “Back-to-Starbucks” plan—remain unresolved, which supports staying selective rather than treating the stock as a straightforward bargain. A durable upside case still hinges on Starbucks proving it can restore positive traffic without leaning heavily on pricing, re-expand North America margins, and leverage its capital-light Channel Development and RTD partnerships for incremental growth. Until those milestones are more clearly visible in the numbers, the stock’s still-elevated implied expectations leave limited margin of safety against further macro, competitive, or cost shocks. Tactically, fundamental investors should focus on upcoming quarters’ U.S. and global comp trends, North America segment margins, and concrete progress on Green Apron Service rollout and menu simplification as leading indicators of whether the turnaround is taking hold. Income-oriented holders may remain in the name given Starbucks’ brand durability and cash-generation potential, but new capital likely merits a staggered or wait-and-see approach rather than a full allocation at current levels.

Thesis delta

Our prior stance was HOLD/NEUTRAL, citing a strong brand and channel strategy but soft comps, margin compression, and a relatively full valuation with little margin of safety. The incremental news of a 15% share-price decline and mention of early stabilization does not yet change the fundamental picture of pressured traffic and costs, but it does slightly improve the valuation backdrop and suggests downside momentum in fundamentals may be slowing. As a result, we maintain a neutral rating, with a marginally more constructive bias contingent on demonstrable progress in comps and margins or a further valuation de-rate that would better compensate for ongoing execution risk.