Starbucks Surges as Its Turnaround Gains Steam

Key Points

Starbucks delivered sales, profits, and comps that all outpaced expectations.

The company's "Back to Starbucks" turnaround plan is bearing fruit.

There's more work to be done.

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It's been a tough few years to be a Starbucks (NASDAQ: SBUX) shareholder. After years of dependable growth, the coffee chain stumbled, with growth as tepid as day-old java. The company took a big swing, bringing in former Chipotle CEO Brian Niccol to right the ship, and there were already positive signs that his turnaround efforts were taking hold. Starbucks faced a critical test when the company reported after the market close on Tuesday, and the results came in piping hot.

For the company's fiscal 2026 second quarter (ended March 29), Starbucks delivered net revenue that jumped 9% year over year to $9.5 billion. The results were fueled by comparable-store sales (comps) that climbed 6.2%, driven by a 3.8% increase in transactions and a 2.3% increase in the average ticket. This fueled earnings per share (EPS) of $0.45, up 32%, while adjusted EPS of $0.50 climbed 22%.

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To give these results context, analysts' consensus estimates were calling for revenue of $9.23 billion and adjusted EPS of $0.44, so Starbucks cleared both hurdles with room to spare.

Digging into the results revealed even better news. Comps in North America -- the company's biggest market -- increased 7.1%, driven by a 4.4% increase in transactions and 2.6% increase in the average ticket. At the same time, international comps improved 2.6%, as transactions increased 2.1% and ticket total increased 0.5%. Management noted that "all 10 of Starbucks largest international markets delivered positive comps for the first time in nine quarters."

Niccol heralded the results, saying, "Our second quarter marked the turn in our turnaround as our 'Back to Starbucks' plan drove both top and bottom line growth." He went on to say, "This is the Starbucks our customers deserve and the Starbucks we believe will deliver long-term growth and value for our partners and shareholders as we execute consistently, at scale."

The company also opened 11 net new stores during the quarter, bringing its total to more than 41,000 locations worldwide.

Starbucks continues to make progress with its previously announced joint venture (JV) with Boyu Capital, which will operate the company's retail locations in China. As part of the JV, Boyu Capital holds a 60% stake in Starbucks China, with Starbucks controlling the remaining 40%, while retaining ownership and licensing of the brand and intellectual property. Management noted that the impact of the transactions would begin to be reported in its Q3 results.

Perhaps the most important news concerned Starbucks' view of the future. The company increased its full-year 2026 outlook and is now guiding for U.S. and global comps of 5% or greater, up from its forecast of 3% growth delivered just last quarter.

Earlier this month, Starbucks announced a quarterly dividend of $0.62, payable on May 29, to shareholders of record as of May 15. With 1.14 billion shares outstanding, that works out to nearly $709 million in cash paid out, compared to net income of $511 million.

CFO Cathy Smith explained, "We've been clear that top-line improvement would come first, with earnings growth to follow." She went on to note, "We have more work to do." Investors should keep an eye on the trajectory of profits to ensure Starbucks has the resources to maintain the dividend at its current level.

In the 18 months since Niccol took the helm, Starbucks has made notable improvements in its operations. Those are beginning to show through in the financial results. This turnaround is gaining steam, and Starbucks stock is as hot as its coffee. At 33 times next year's expected earnings, much of the turnaround is already baked into the stock price. That said, as Starbucks continues to boost its profits, it could end up being a bargain.

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Danny Vena, CPA has positions in Chipotle Mexican Grill and Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short June 2026 $36 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.