Core Viewpoint - Starbucks is undergoing a turnaround process, but it is incurring significant costs in the process, leading to declining operating margins and profitability [1][4][11]. Group 1: Sales Performance - Global same-store sales fell by 2%, marking the sixth consecutive quarter of decline [6]. - In North America, comparable-store sales also decreased by 2%, with traffic down by 3% [6]. - In China, the second-largest market, same-store sales increased by 2%, driven by a 6% rise in traffic, despite a 4% decline in average ticket [7]. Group 2: Strategic Initiatives - Starbucks is implementing a Green Apron Service model to standardize operations across stores, which has already shown improvements in transactions and customer service [2]. - The company is remodeling stores and upgrading its mobile app and ordering system to enhance customer experience [3]. - New product offerings, including protein cold foam add-ons and coconut-water-based beverages, are being introduced to encourage higher spending [3]. Group 3: Financial Impact - The remodeling program costs approximately $150,000 per store, while additional labor investments are expected to add $500 million in annual costs over the next year [4]. - Adjusted operating margins contracted by 660 basis points to 10.1%, with store operating expenses rising by 13.5% year over year [4]. - Overall sales increased by 4% to $9.5 billion, but adjusted earnings per share (EPS) fell by 46% to $0.50, missing analysts' expectations [8]. Group 4: Future Outlook - The company is focused on reducing costs to offset increased labor expenses and aims to restore operating margins to pre-pandemic levels [5][11]. - CEO Brian Niccol believes that the company was not over-earning previously and sees 2019 as a roadmap for future margins [5]. - Starbucks is trading at a forward price-to-earnings (P/E) ratio of about 32 based on fiscal 2026 estimates, indicating a potentially high valuation amidst ongoing turnaround efforts [12].