It’s been a tough year for Starbucks NASDAQ: SBUX. The king of coffee retail chains has seen its stock slide more than 25% from its year-to-date (YTD) high on Feb. 23, and when it reported Q3 earnings on July 29, it missed analysts’ estimates by nearly 28%.
Starbucks Today
$117.46
Dividend Yield2.82%
P/E Ratio37.25
Price Target$104.00
While some of that may reflect cyclical consumer behavior amid all-time high coffee prices—both as a global commodity and for U.S. retail prices—Starbucks has also suffered from poor optics. Multi-year protests by labor union supporters as well as a boycott campaign rooted in the Israel-Gaza conflict has bled into 2025, significantly impacting the company’s sales.
Last week, the coffee chain announced plans to close stores and conduct another round of layoffs. But as Starbucks debuts a new strategic plan to bolster sales, there are fundamental issues that may go unanswered. Meanwhile, one competitor is making waves and providing an alternative for investors looking to harness the upside potential of a company that went public in 2021 and is now the fastest-growing retail coffee chain.
Starbucks’ Struggles Aren’t Isolated to Last Quarter
Despite a small revenue increase in Q3, Starbucks saw comparable store sales as well as transactions decline significantly throughout the first second and third quarters of its fiscal year. In response, chairman and CEO Brian Niccol announced in late September a restructuring plan billed as “Back to Starbucks.”
As part of that new strategy, which entails a $1 billion restructuring, 900 non-retail employees will be laid off. This marks the second round of layoffs with Niccol at the helm, following 1,100 workers being let go earlier in 2025. Other notable features of the “Back to Starbucks” plan include the return of the condiment bar, a marketing shift away from highlighting discounts, and efforts to increase pricing transparency—for example, by removing upcharges for non-dairy milk.
However welcome those measures may be, bringing back condiment bars doesn’t appear to be the solution to more systemic issues that the company faces. In April, a lawsuit was filed against Starbucks by Brazilian workers who alleged forced labor in the company’s coffee supply chain. One month later, hundreds of its baristas across the United States staged walkouts to protest a new dress code policy, and in September, the union representing its eligible workers claimed that 59 of the locations Starbucks has decided to close were unionized stores.
The restructuring plan will come at a sizable cost, too. According to a Form 8-K filing Starbucks made with the SEC, the company is expected to have to shell out $150 million in employee separation costs (e.g., severance pay, unemployment taxes and administrative tasks such as exit interviews and payroll updates) and another $850 million in payments related to its store closures (e.g., breaking leases due to store closures before the end of contractual terms).
While the company remains a decent option for income investors—its dividend currently yields 2.81%, or $2.44 per share annually—its dividend payout ratio of 105.17% is an enormous red flag and seemingly unsustainable.
One Competitor Undergoing Rapid Expansion
While the impacts of the “Back to Starbucks” strategic plan won’t materialize for some time, it is a clear indication—underscored by downsizing its location and staffing footprints—that the company is not in growth mode.
But for investors who are dialed into America’s insatiable appetite for coffee, it isn’t all bad news. Other retailers operating in the consumer discretionary sector are providing better upside potential, stronger earnings, and better growth prospects.
Dutch Bros Today
$86.88
P/E Ratio107.49
Price Target$79.88
Dutch Bros NYSE: BROS continues to outperform Starbucks in share appreciation, earnings, and revenue growth. The company, which went public in September 2021, is favored among Wall Street, with higher institutional ownership at nearly 86% versus Starbucks’ 72%.
Last quarter, Dutch Bros beat on earnings by 44.44% while seeing its quarterly revenue grow 28% year-over-year. The company is expected to grow its earnings 38.60% next year. Analysts are in agreement that Dutch Bros’ performance over the next year will outperform that of Starbucks, with an average 12-month price target of $79.88 representing nearly 52% upside potential from today’s share price.
Since the stock ran up in the wake of its blowout Q2 earnings call in August, BROS has retraced nearly 30%. But it appears to have found support just above its YTD low set on April 4. With a current Relative Strength Index (RSI) reading of 29.97, the stock is considered oversold, which could foretell the start of a dramatic near-term price reversal. The last time Dutch Bros’ RSI was in oversold territory on July 24, it preceded a 27% gain through Aug. 28.
