Starbucks (SBUX) reported its Q2 2025 earnings amid a turbulent operating environment, showcasing modest top-line growth while grappling with significant profitability challenges. Consolidated net revenues rose 2% year-over-year to $8.8 billion, primarily fueled by the expansion of company-operated stores. However, this was partially offset by a 1% decline in global comparable store sales, driven by a 2% drop in the U.S., even as international markets posted a 2% gain.

Profitability came under pressure across the board. The operating margin declined sharply to 6.9%, down 590 basis points from the prior year, impacted by cost deleverage, elevated labor expenses tied to the “Back to Starbucks” strategy, and $116 million in restructuring charges. As a result, net earnings fell 50% YoY to $384.2 million, marking a notable contraction in the company’s bottom line.

In the North America segment, revenue inched up 1% to $6.47 billion, as 504 net new stores offset weaker in-store performance. Comparable store sales dropped 1%, reflecting a 4% decline in transactions, partially offset by a 3% increase in average ticket size. However, operating income plummeted 35% to $748 million, with margins narrowing to 11.6% due to rising labor and store operating expenses, which surged to 58.5% of revenue.

Internationally, Starbucks posted stronger top-line growth, with revenues up 6% to $1.87 billion on the back of 779 new stores and a 2% increase in comparable sales. However, operating income slipped 7% to $217 million, as promotional activity and restructuring weighed on margins, which fell 170 basis points to 11.6%.

The Channel Development segment saw a 2% decline in revenue to $409 million, reflecting weakness in the Global Coffee Alliance. Operating income declined 11% to $194 million, with margin contraction driven by higher product costs and lower JV income.

In terms of product mix, beverages accounted for 60% of revenue, followed by food at 19% and other items, including packaged coffee and royalties, at 21%.

Management reiterated its commitment to the “Back to Starbucks” strategy, emphasizing investments in labor, store growth, and customer experience. While macroeconomic headwinds—including inflation, volatile coffee prices, tariffs, and FX swings—are expected to persist, the company remains confident in its long-term growth trajectory. No share repurchases occurred in the first half of the year, though 29.8 million shares remain authorized for buyback, and the Board approved a $0.61 per share quarterly dividend, payable on May 30, 2025.

As of the quarter’s end, Starbucks operated over 40,700 stores globally, reflecting a 5% increase YoY. Management acknowledged ongoing legal proceedings related to labor union activity but does not expect material financial impact.

Despite short-term margin pressures, Starbucks continues to invest for future growth, balancing near-term cost challenges with a disciplined focus on store expansion, operational resilience, and shareholder returns.