SBUX

Consensus for Q4 FY25. Multiple trackers point to revenue ~$9.36–$9.41bn and EPS ~$0.55–$0.57. That's +~3% YoY on revenue and −~30% YoY on EPS versus Q4 FY24 (~$0.80).

Company guidance. There is no specific Q4 guide; recall Starbucks suspended its FY25 outlook during the reset and has framed 2025 as a rebuild year. Absent a numeric guide, the "gap" analysis reduces to: is Street too optimistic on EPS margin recovery given continued U.S. traffic softness and China's mix/ticket dynamics?

Expectations check from recent beats/misses. The last four prints show:

• Q3 FY25: EPS $0.50 vs ~$0.65 est (miss), 1D move ≈−0.2%.
• Q2 FY25: EPS $0.41 vs ~$0.486 est (miss), 1D move ≈−5.7%.
• Q1 FY25: EPS $0.69 vs ~$0.68 (small beat), 1D move ≈+8.1%.
• Q4 FY24: EPS $0.80 vs ~$1.03 (miss), 1D move ≈+0.4% (complex setup; print preceded CEO reset).

The average absolute 1-day move over these four: ~3.6–4%. Options-implied move into this print is ~8–10% on weekly/monthly measures—i.e., implied is rich to realized.

Conclusion: the Street embeds a modest sequential margin uptick and clean print; options embed a "big update" premium. There is room to disappoint on quality of earnings or guide language even if revenue is nominally in line.

Peers and channels. The restaurant complex's premium names (MCD, YUM, DPZ) trade at lower forward multiples and have steadier traffic narratives; investors are paying Starbucks a premium for a turnaround plus China recovery—both still fragile.

China. Q3 saw China comps +2% (transactions +6%/ticket −4%), 7,828 stores, and commentary around modest improvement and innovation—but competition is intensifying from local chains and value players; management has explored bringing in a partner/selling a minority stake. Valuation whispers for that stake have clustered around low-single-digit billions, underscoring that bullish SOTP marks may be too generous.

U.S. channel health. In North America, comps were −2% with −3% traffic in Q3, and Q4 fell during peak promotional season for iced beverages; management has explicitly leaned into more labor hours, process changes and marketing—good for service, but near-term dilutive to margins. Loyalty remains a strength (≈34M 90-day actives; member tender nearly 58–60% of U.S. mix), but membership is flat-to-slightly down from late 2024 peaks, which reduces an easy lever for mix.

Macro. U.S. consumer "small treats" spend has been resilient but price sensitivity has risen; in China, the value shift persists. Starbucks' mix (premium beverages, customization) is encountering heavier discounting and ticket pressure internationally (notably China's −4% ticket in Q3). Net: traffic improvement is the unlock; pricing power near term is limited.

I model from the segment disclosures and Q3 run-rate, layering comps and store adds.

Revenue. Starting with Q3's $9.46bn, I haircut North America by seasonal step-down and comps (assume comps −1% to −2% with net store growth tailwind ≈+4–5% YoY), yielding North America ~$6.85–$6.95bn. International grows LSD/MSD on store adds and FX tailwind rolling off, to ~$2.00–$2.05bn. Channel Development ~$0.47–$0.49bn. This triangulates to $9.32–$9.44bn in base, with bear $9.20bn on weaker U.S. traffic and international ticket, and bull $9.50bn if U.S. fall beverages outperform.

Margins & opex. The Q3 margin bridge showed +120 bps headwind in product/distribution (coffee inflation), +390 bps in store opex (labor deleverage + marketing), +30 bps in D&A. Unless labor hours normalise faster than expected, I carry only a modest sequential recovery: base consolidated non-GAAP op margin ~10.7–11.2% (vs 10.1% in Q3), bear ~9.5–10.0%, bull ~11.8–12.0%. Key swing factors are U.S. labor scheduling efficiency and promotional intensity in International, where Q3 margin was 13.6% on heavier promos.

EPS & cash. Using share count ≈1.136–1.140bn and interest expense cadence from Q3, base EPS $0.54–$0.56; bear $0.48–$0.52; bull $0.60–$0.62. Working capital normally provides a modest Q4 inflow (card loadings ahead of holidays are back-half weighted; holidays mostly hit FQ1), but given the calendar, I assume neutral to slightly positive FCF in Q4, with FY25 FCF still positive on reduced buybacks and dividend outflow of $0.62/quarter maintained.

History: across the last four earnings days, SBUX realized ~5% average absolute moves (1D), with mixed signs. Options markets now imply ~8–10% into this event (weekly ~7.9–8.3%, monthly ~9.6–10.1%). That tells me optionality is not cheap and the bar for an outsized move is higher than usual.

Mapping scenarios to price:

• Bear: print misses on EPS quality or guide tone; stock −7% to −10% (premium multiple de-rates; options absorb).
• Base: in-line rev/EPS but "work to do" language on U.S. traffic; −2% to −6% as valuation compresses toward quality peers without a decisive turn.
• Bull: clean in-line/beat and credible early-FY26 inflection markers (service times, repeat frequency, concrete labor ROI); +5% to +8% given skepticism.

Probability-weighting yields an expected move ≈ −3% to −4%, skewed left.

The call. SHORT SBUX into the print, conviction 60%. The setup combines: (i) a premium multiple vs restaurant peers, (ii) Street EPS sitting near the top of what I view as a realistic margin envelope given Q3's deleverage math, and (iii) options implying a larger move than the recent realized pattern. If the company prints "in-line" but can't point to a quantifiable traffic turn, the market can take the multiple down a turn or two.

Sizing & risk. For a diversified book, I'd cap at 50–75 bps gross on outright delta, with options preferred. Liquidity is ample. Factor exposure leans consumer discretionary/quality; the macro beta can be hedged with a light long-MCD or long-DPZ leg to neutralize "restaurant quality" and focus on SBUX idiosyncratic execution.

Structures. A put spread targeting the implied move (e.g., −7% body, −12% wing) offers convexity with defined risk; add a small OTM call short or buy a cheap call cap if you're uncomfortable with a squeeze on any unexpected strategic update (China stake, sharper FY26 markers).

If Starbucks beats and raises with evidence (service times under a stated target, sequential U.S. traffic improvement, lower promo intensity in International), I will cover quickly and consider a pairs long if the guide pins to FY26 operating leverage math. If it's a cosmetic beat (mix/promo-driven, one-offs, tax), I'll fade any strength.

If they miss and guide down, especially on North America traffic or China ticket, I would press for T+1 (−8–10% downside scenario) but avoid pressing into T+5 if options were rich and vol crush has played out.

If they announce China stake progress with credible valuation/royalty disclosure, I'll reassess SOTP; most reported indications cluster at valuations that are not thesis-breaking highs, so the default reaction should still be to sell strength unless the terms are remarkably favorable.

Cycle & context. We are in the messy middle of a turnaround. Multi-quarter revenue still grows LSD on footprint expansion, but comps are negative or flat and margin is rebuilding from a low base after the reset. U.S. value sensitivity and China's price war remain structural headwinds; the "Back to Starbucks" operational fixes likely work, but payoff timing is FY26 at the earliest per management's own tone. Given the valuation premium to defensive peers and the absence of a clear comp inflection yet, I mark Cycle = Yellow (not trough, not late, but expectations still ahead of proof).

Top risks:

• A surprisingly strong U.S. fall/holiday setup (service gains + loyalty re-engagement) produces a clean in-line/beat and multiple expansion.
• China narrative improves faster (transactions hold and ticket stabilizes), or a partner deal surprises on valuation and structure.
• Commodity/freight tailwinds accelerate margin repair sooner than modeled.
• Labor efficiency programs scale faster than expected, dropping store opex as % of sales.
• Options market overprices downside; skew reversal squeezes shorts.

Data gaps. No explicit Q4 guide; limited real-time traffic transparency. More granular disclosures on promo intensity and labor hours would tighten EPS ranges.

Questions for IR:

• What is the sequential change in U.S. service times and repeat purchase frequency since Q3? Please quantify.
• How much of the Q/Q GM change is mix vs promotions vs coffee/freight?
• In China, what is the elasticity to price reversals you've trialed; are ticket declines stabilizing?
• How should we think about FY26 cadence of labor investments rolling off vs productivity capture?
• Any changes to KPI disclosure (rewards actives, member share of tender) in FY26?