Starbucks (SBUX): Comps +7.9%, EPS Beat 29% — But a Third Was Tax and Tariffs | Q3 FY2026

Starbucks Corporation (SBUX) Q3 FY2026 — Revenue $9,322.7M, -1.4% y/y on the China deconsolidation. Global comps +7.9% (transactions +4.2%, ticket +3.5%); North America +8.1%, U.S. +7.9%, International +5.7%. GAAP operating margin 10.5% (+60bps); non-GAAP operating margin 14.4% (+430bps). Non-GAAP EPS $0.85 vs $0.66 consensus (+70% y/y); GAAP EPS $0.91 (+85.7%), HIGHER than non-GAAP because the $536.3M China divestiture gain is excluded. FY26 non-GAAP EPS guidance RAISED to $2.55-$2.65 from $2.25-$2.45. Stock closed +1.64% at $105.85 on 30 July after opening +3.0% and fading. Starbucks' fiscal Q3 2026 was the best quarter the company has printed in three years, and the price already owns it. Global comparable store sales rose 7.9%, led by a 4.2% increase in transactions - traffic, not price - the fourth straight quarter of comp growth. Non-GAAP EPS of $0.85 beat consensus by 29% and management raised the full year by roughly 30 cents. But three disclosed lines did about a third of the work: the non-GAAP tax rate fell 960bps to 21.8% (worth ~$0.10 of the $0.35 EPS increase), IEEPA tariff refunds covering three quarters of cost landed in one quarter's product and distribution costs, and the North America store base shrank by 363 units. Management's own raised guidance implies Q4 non-GAAP EPS of $0.64-$0.74 - 13% to 25% BELOW the quarter that caused the re-rating. At $105.85 that is 40.7x forward non-GAAP earnings on a flat-revenue guide. Our DCF lands at ~$70. AVOID. THE CALL: AVOID (4/5, THE TURNAROUND IS REAL. THE PRICE ALREADY OWNS IT.) — base-case value ~$70.0 vs ~$105.85 today. KEY METRICS: - Fiscal Q3 FY2026 = the 13 weeks ended June 28, 2026; 10-Q and 8-K Ex-99.1 both filed 2026-07-29 - Global comps +7.9% (transactions +4.2%, ticket +3.5%) - 4th straight quarter of growth - North America comps +8.1% (txn +4.5%); U.S. +7.9% (txn +4.2%); International +5.7% (ticket-led) - NO China comp is disclosed - China retail became a Boyu-run licensee JV this quarter - Revenue $9,322.7M, -1.4% y/y; company-operated -3.9%, licensed +8.6%; beat the ~$9,174M Street - GAAP operating margin 10.5% (+60bps) vs non-GAAP operating margin 14.4% (+430bps) - GAAP EPS $0.91 (+85.7%) is HIGHER than non-GAAP EPS $0.85 (+70.0%) - the $536.3M gain is excluded - Non-GAAP tax rate 21.8% vs 31.4% (-960bps) = ~$0.10 of the $0.35 non-GAAP EPS increase - IEEPA tariff refunds: 3 quarters of tariff cost refunded into ONE quarter's P&D costs (30.3% vs 31.3%) - $364.8M of restructuring/transaction/transformation costs is the GAAP-to-non-GAAP bridge - 41,304 stores (33% company-operated, 67% licensed); 7,991 China stores converted to licensed - North America store base 18,371 vs 18,734 a year ago - down 363, and -14 net this quarter - Segments: North America $7,395.1M +7.0% (margin 13.6%); International $1,322.6M -34.2% (margin 19.1%) - Channel Development $587.9M +21.5% at a 52.1% operating margin; Corporate and Other -$587.5M - China: $2,544.2M net proceeds, $536.3M book gain, 40% retained stake; goodwill -$2,130M - $2,815.9M of long-term debt repaid in 9M incl. ~$1.3B of tender offers; LTD $14,575.9M to $11,780.2M - 9M cash from operations $3,604.1M (+7.1%); capex only $887.8M vs $1,849.5M; 9M FCF ~$2.72B - Shareholders' DEFICIT $7,674.3M; total debt $13,278.6M plus $9,155.5M of operating leases - Dividend $0.62/qtr (65th consecutive) = ~$2.84B/yr against ~$3.2B FY26E FCF - 1.1x coverage - FY26 guidance RAISED: non-GAAP EPS $2.55-$2.65 (from $2.25-$2.45), GAAP $2.14-$2.24 - That leaves Q4 non-GAAP EPS of $0.64-$0.74 vs $0.85 in Q3 - down 13% to 25% sequentially - FY26 non-GAAP operating margin guided >11.0% against the 14.4% just printed - Valuation: 40.7x FY26E non-GAAP EPS of $2.60; 47-49x the GAAP range. MCD 22.1x, YUM 19.6x, CMG 35.3x - DCF at 8.0%: bear $41 / base $71 / bull $107; probability-weighted 30/50/20 = $69 - Reverse DCF: $105.85 requires 12.6% FCF growth every year for a decade, or a 6.4% cost of capital What to watch: Bull: non-GAAP operating margin holding above 13% in fiscal Q4 and Q1 with no tariff refund and a normal tax rate, proving the 430bps was structural; plus U.S. comps staying above 6.5% while the store base stops shrinking. Both, and our base case moves toward $90. Bear: Q4 non-GAAP EPS below $0.64 (the bottom of the implied range); U.S. comps under the guided 6.5%; or an FY27 outlook showing the tax rate normalising back toward the high twenties, worth roughly $0.10 a quarter on its own. Any two and fair value is nearer $55 than $70. Real buyers around $60. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.