Starbucks Stock Slumps; This Competitor Shows Strength

Starbucks (SBUX) is navigating significant headwinds, with its stock down over 25% YTD, a 28% Q3 earnings miss, and declining comparable store sales amid labor disputes and boycotts. The company's $1 billion "Back to Starbucks" restructuring plan, which includes layoffs and store closures, is projected to incur substantial costs, with its 105.17% dividend payout ratio raising sustainability concerns. In contrast, Dutch Bros (BROS) is presented as a rapidly growing alternative, outperforming Starbucks in revenue and earnings growth, with strong analyst favor and an oversold RSI suggesting potential for a near-term price reversal.

Analysis

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 $86.42 -0.30 (-0.35%) As of 10/3/2025 04:00 PM Eastern - 52-Week Range - $75.50 ▼ $117.46 - Dividend Yield - 2.82% - P/E Ratio - 37.25 - 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 $50.52 -1.81 (-3.46%) As of 10/3/2025 03:59 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. - 52-Week Range - $30.49 ▼ $86.88 - P/E Ratio - 107.49 - 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. Before you consider Starbucks, you'll want to hear this. MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Starbucks wasn't on the list. While Starbucks currently has a Moderate Buy rating among analysts, top-rated analysts believe these five stocks are better buys. View The Five Stocks Here Unlock the timeless value of gold with our exclusive 2025 Gold Forecasting Report. Explore why gold remains the ultimate investment for safeguarding wealth against inflation, economic shifts, and global uncertainties. Whether you're planning for future generations or seeking a reliable asset in turbulent times, this report is your essential guide to making informed decisions. Get This Free Report Like this article? Share it with a colleague. Link copied to clipboard. Starbucks (SBUX) is confronting significant operational and financial challenges, reflected in a stock decline of over 25% YTD and a Q3 earnings miss of nearly 28%. The company's performance is hampered by a confluence of factors, including declining comparable store sales, brand damage from ongoing labor disputes, and consumer boycotts. In response, management has initiated a $1 billion "Back to Starbucks" restructuring plan, involving 900 non-retail layoffs and store closures, which is projected to incur $150 million in separation costs and $850 million in lease-related payments. While the plan aims to revive sales, its focus on minor changes like condiment bars may not address systemic issues such as a forced labor lawsuit in its supply chain. A critical red flag for income-focused investors is the dividend payout ratio of 105.17%, which questions the sustainability of its 2.81% yield. In stark contrast, competitor Dutch Bros (BROS) is exhibiting strong momentum as a growth-oriented alternative. The company recently surpassed earnings estimates by 44.44% and posted 28% year-over-year quarterly revenue growth. Analyst sentiment is firmly positive, with a price target implying nearly 52% upside and institutional ownership at 86%. Despite a recent 30% price retracement, the stock's RSI of 29.97 suggests it is technically oversold, potentially signaling an imminent price reversal.

Key Decisions for Investors

• Investors in Starbucks should closely monitor the effectiveness of its $1 billion restructuring plan and be wary of the 105.17% dividend payout ratio, which signals a high risk to the sustainability of shareholder returns amidst significant operational headwinds.
• For those seeking growth in the consumer discretionary sector, Dutch Bros presents a compelling alternative, with its recent 30% price pullback and oversold RSI potentially offering a tactical entry point to capture its strong revenue growth and positive earnings outlook.
• A potential pairs trade could be considered, going long Dutch Bros (BROS) to capitalize on its fundamental strength and shorting Starbucks (SBUX) to hedge against its ongoing brand reputation risks, restructuring costs, and declining sales metrics.