Shares of Starbucks rose about 8% on Wednesday after the coffee giant reported stronger-than-expected second-quarter results and raised its annual outlook, signaling early success in its ongoing turnaround strategy under CEO Brian Niccol.
The stock also gained following the earnings release, as investors responded positively to improving sales trends and a return to year-over-year earnings growth.
Strong earnings and sales growth boost sentiment
For the three months ended in March, Starbucks reported net revenue of $9.5 billion, up 9% from a year earlier and ahead of analyst expectations of $9.2 billion.
Adjusted earnings came in at 50 cents per share, rising 22% year-over-year and beating estimates of 43 cents.
This marks the company’s first year-over-year earnings growth since the December quarter of 2023, a key milestone in its recovery efforts.
Global comparable sales increased 6.2%, supported by higher menu prices and improving transaction volumes.
In the United States, comparable sales rose 7.1%, continuing momentum from the previous quarter.
“This quarter marked a milestone for Starbucks–and the turn in our turnaround,” said CEO Brian Niccol in a video message to investors.
Foot traffic data also pointed to strengthening demand.
According to Placer.ai, average visits per Starbucks location rose 5.9% during the January–March quarter.
Niccol added that customer traffic increased across all income cohorts, with no visible impact from economic uncertainty.
‘Back to Starbucks’ strategy shows early traction
Niccol, who took over in September 2024, has been leading a broad operational reset under the “Back to Starbucks” strategy.
The plan focuses on simplifying menus, reducing wait times, increasing staffing, and introducing in-store technology to improve order sequencing.
The company has also refreshed its rewards program, which helped boost sign-ups, particularly among Gen Z and Millennials, according to TD Cowen analysts.
Analysts broadly viewed the recovery as sustainable. “The recovery is notable for its breadth, indicating the turnaround is structurally sound rather than dependent on a specific group,” analysts at Stifel said.
Morningstar analysts echoed this sentiment, stating: “Starbucks drove US spending growth across all income and age cohorts, which points to consumers’ appetite for on-trend innovation, even against a hazy macro backdrop.”
The company is also reshaping its global footprint, including a new China joint venture aimed at accelerating growth while improving capital efficiency.
Margins under pressure despite improving outlook
Despite the strong top-line performance, profitability remains under pressure.
North American operating margins declined to 9.9% from 11.6% a year earlier, reflecting higher labor investments and costs associated with the turnaround plan.
“We’re increasingly focused on North America margins over the coming quarters,” UBS analysts said, while noting that operational improvements and cost-saving initiatives could support margins over time.
Niccol acknowledged the company’s focus on sustaining momentum. “Put simply, more customers are getting back to Starbucks as we deliver the best of Starbucks more consistently,” he said. “Our focus now is on sustaining our momentum, so today’s progress becomes lasting performance.”
At least five brokerages have raised their price targets on the stock following the results, citing stronger demand trends and improving earnings visibility.
Starbucks shares have gained about 25.2% so far this year and are trading at a forward price-to-earnings ratio of 36.08, reflecting growing investor confidence in the company’s turnaround trajectory.
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