Starbucks guides next year's margin to the 14.0% it earned in its latest quarter

Starbucks has set its adjusted operating margin for the coming fiscal year at 13.5% to 14.0%. That measure leaves out restructuring and a few other costs, and the company presents the range as a clear gain on the year just ended, when the same margin averaged 11.9%. The average blends two different halves. The margin was far lower in the first two quarters, jumped in the third quarter and stood at 14.0% in the September 2026 quarter. The third-quarter figure was flattered by tariff refunds, and the company said at the time that its year-to-date cost ratio gave the more normal picture. Measured against last quarter, the new range holds the margin rather than raising it, and most of the year-on-year gain will come from lapping the weak first half.

Several things lifted the margin in the second half. Starbucks handed its China stores to a joint venture it licenses, which turned a low-margin company-run business into royalties and product sales; the International division's margin rose to 19.7% in the last quarter, mainly for that reason. The extra store labour it added the summer before became part of the cost base a year later, so the comparison stopped penalising it. North America, the business that carries the group, grew comparable-store sales by 7.9% in the last quarter, which spread fixed store costs over more revenue, and a company-wide cost-savings programme is more than half done. In the third quarter, lower inflation and the tariff refunds helped as well. The chief financial officer expects the savings to keep coming for two more years, and the benefit of the lapped labour investment to show more clearly next year.

The guidance assumes North America comparable sales growth of about 4%, roughly half the pace of the quarter just reported, and consolidated revenue is guided to fall about 1% even with an extra week. So the earnings growth rests on the margin step, not on sales. Adjusted earnings per share are guided to $3.15 to $3.25, against $2.72 last year, and the range includes slightly more than ten cents from an extra week in the fiscal calendar. Part of next year's growth therefore comes from the calendar rather than from the stores. Management does not present the range as a limit: the chief executive said next year's guide already reaches the low end of the margin target the company set at its investor day for the following fiscal year, and that those longer-range targets were "just a point in time on our journey".

There is a reason not to treat the range as a ceiling. Starbucks opened the year just ended guiding to $2.15 to $2.40 a share, raised the range in April and again in July, and finished above the top of every version. That record describes how the company sets its numbers; it is not a forecast. On the reported measure, the operating margin two years earlier was higher, and the new range still sits below it, on a business that now books China as a licensee rather than as its own stores.

The cash side of the year flattered the turnaround more than the margin did. Capital spending fell to 3.3% of revenue, calculated from the reported figures, roughly half the share of the year before. The chief financial officer tied the drop to fewer new openings and said spending will rise to about 5% of revenue next year, while the company plans to resume share repurchases on top of its dividend. Free cash flow in the year just ended is therefore a high base, not a run rate.

The adjusted margin also leaves out the cost of shrinking the store base. In September Starbucks closed about 250 more company-run North America coffeehouses that it said were not earning what the brand expects, the second autumn of closures in a row, and restructuring and impairments came to $688.6 million for the year. On the reported measure that includes those costs, the operating margin was 9.7%. The guidance does not cover restructuring, so a holder comparing next year's results with the range will be reading the adjusted figure, and the reported one may again sit below it.