Can Starbucks Offset North America Margin Pressure in 2H FY26?

Starbucks Corporation SBUX is entering the back half of fiscal 2026 with improving sales momentum, but North America margin pressure remains an important test for the turnaround. In the fiscal second quarter, consolidated operating margin expanded 110 basis points year over year to 9.4%, marking Starbucks’ fiscal first quarter of consolidated margin expansion since the first quarter of fiscal 2024. However, margin performance in North America remained under pressure, with segment operating margin contracting approximately 170 basis points year over year to 10.2%.The margin contraction reflected several cost and accrual-related pressures. Starbucks’ North America margins were affected by roughly 190 basis points of product and distribution cost increases as a percentage of revenues, as well as greater-than-anticipated legal accruals. About half of the product and distribution increase was tied to innovation-led product mix, while the remaining pressure was largely related to tariffs and elevated coffee prices.The second-half setup is more balanced. Starbucks expects coffee and tariff pressures to begin easing in the back half of fiscal 2026, helped by recent trends in coffee prices. The benefit may not appear immediately because Starbucks’ coffee costs typically lag market movements due to purchasing and hedging practices. Still, a moderation in these pressures could help reduce one of the more visible drags on North America’s profitability.For the back half of fiscal 2026, the margin recovery case depends on Starbucks converting stronger U.S. traffic into better profit flow-through. The company expects stronger sales leverage over the next two quarters, supported by continued progress on cost-savings initiatives. If those benefits materialize alongside easing coffee and tariff pressure, Starbucks could have a clearer path to offsetting North America margin headwinds.How Starbucks’ Margin Setup Compares With PeersDutch Bros Inc. BROS is navigating a similar input-cost backdrop, with higher coffee costs and food rollout expenses driving a 120-basis-point increase in beverage, food and packaging costs as a percentage of company-operated shop revenues in the first quarter of 2026. The impact was partly mitigated by operating leverage, as labor costs improved 120 basis points and adjusted SG&A improved 100 basis points as a percentage of revenues. For 2026, BROS expects adjusted EBITDA margin pressure from higher coffee and occupancy costs, partially offset by SG&A leverage.McDonald’s Corporation MCD provides a scale-driven comparison. The company reported an adjusted operating margin of 46% and more than $3.6 billion in restaurant margins in the first quarter, although U.S. company-operated margins remained under pressure. To manage cost volatility, MCD is relying on supply-chain scale, supplier partnerships and hedging strategies while also reviewing the optimal mix of company-operated and franchised restaurants.Against this backdrop, Starbucks’ margin challenge is more closely tied to North America turnaround investments and input-cost pressure. BROS is relying on labor efficiency and SG&A leverage to cushion coffee and occupancy headwinds, while MCD benefits from scale, franchising and supply-chain discipline. For Starbucks, Green Apron Service investments, innovation-related costs and operating discipline remain important variables in determining whether Back to Starbucks can translate into stronger operating leverage.SBUX’s Price Performance, Valuation & EstimatesShares of Starbucks have gained 8.5% in the past year against the industry’s 8.2% decline.SBUX’s One-Year Price PerformanceImage Source: Zacks Investment ResearchFrom a valuation standpoint, SBUX trades at a forward price-to-sales (P/S) multiple of 2.93, below the industry’s average of 3.32.SBUX’s P/S Ratio (Forward 12-Month) vs. IndustryImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for SBUX’s fiscal 2026 earnings per share (EPS) implies a year-over-year increase of 12.7%. The EPS estimates for fiscal 2026 have increased in the past 60 days.EPS Trend of SBUX StockImage Source: Zacks Investment ResearchSBUX’s Zacks RankSBUX stock currently carries a Zacks Rank #3 (Hold). 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