We’re raising our price target on Starbucks after a home-run quarter
Retail
Starbucks knocked it out of the park Wednesday night, turning in strong quarterly results and lifting its full-year guidance for several key metrics. Nearly two years into his tenure, CEO Brian Niccol has clearly revitalized the coffee chain, and he’s not done yet. Revenue in the fiscal 2026 third quarter totaled $9.32 billion, topping the $9.16 billion consensus estimate, according to LSEG. Adjusted earnings per share (EPS) in the April-to-June period came in at 85 cents, beating the 66-cent consensus, LSEG data showed. Comparable store sales across the globe were up 7.9% from a year ago, topping estimates of 5.7% growth, according to FactSet. This restaurant-industry metric, which measures the performance of company-operated stores open for at least 13 months, is closely watched by investors. Shares rose more than 5% in extended trading Wednesday, trading near $110 apiece. If the gains hold into Thursday’s regular trading session, the stock may set a fresh 52-week high (currently $109.23 on July 17). Starbucks has been a quietly strong performer in 2026, closing Wednesday up 23.7% for the year — easily outperforming the S & P 500 ‘s 6.9% advance. The stock has also trounced the S & P 500 consumer discretionary sector index , which is down 6.5% year to date. The group has been weighed down, in part, by concerns about the health of the consumer in the face of Iran war-driven inflation. Starbucks isn’t immune to those concerns, which is reflected in the stock’s more muted performance in recent months. But it’s held in better than the sector during that time. We took profits in Starbucks on Friday to ensure we didn’t let this outperformance go to waste, just in case the earnings report showed any cracks in the consumer; plus, we redeployed that cash into a more beaten-up name ( FedEx Freight ). It turned out that Starbucks still managed to beat elevated expectations and offered reassuring commentary about its ability to keep customers coming into its stores and drive-thrus. While it may seem like we left money on the table by trimming ahead of the quarter, we’re always aware of this possibility. That’s OK. Nobody ever got hurt taking a profit. Consider that our discipline to pare back our Procter & Gamble position on Tuesday afternoon proved to be prudent when the Tide maker’s earnings came out earlier Wednesday, sending shares lower (and ultimately motivating our exit of P & G ). SBUX YTD mountain Starbucks’ year-to-date stock performance. Bottom line Niccol is delivering at Starbucks, just like he said he would. When Niccol set out to fix Starbucks in the fall of 2024, the accomplished former Chipotle boss gave his turnaround agenda a straightforward name: Back to Starbucks. Niccol’s plan involved hiring more workers to cut down on long wait times, which in some cases had gotten so bad people abandoned their orders altogether . He also pledged to spend heavily to make the coffee shops more inviting places to be. These efforts have been showing progress, including an impressive showing in the January-to-March quarter, when comparable store sales, or comps, rose a better-than-expected 6.2% and adjusted operating margins improved on an annual basis. The results reported Wednesday night are arguably even more impressive than the prior quarter, especially considering the elevated gas prices that squeezed household budgets during the three months ended in June. In case there was any lingering doubt, Starbucks is back to being, well, Starbucks. Fiscal third-quarter comps were up 7.9% globally and 8.1% in North America (the U.S. and Canada), which has been the focus of Niccol’s turnaround thus far. In the all-important U.S. market, specifically, comps rose 7.9%, driven by both more customer transactions and higher bills, known as “ticket” size. Why we own it Starbucks has one of the most recognizable brands of any restaurant, but experienced mismanagement coming out of the pandemic. It wisely brought in turnaround specialist Brian Niccol in 2024 to improve service and reaccelerate growth. Improving profitability is increasingly important at this stage of his tenure. Competitors: Dunkin, Dutch Bros , McDonald’s , local coffee shops Most recent buy: Nov. 3, 2025 Weighting in our portfolio: 2.45% Additionally, Niccol said sales growth was balanced across generations, income groups, and rewards program members and non-members. This is encouraging, showing that all different types of customers are appreciating and responding to Niccol’s changes. While Niccol said Starbucks has seen the strongest transaction growth in the morning, the company is also seeing momentum into the afternoons and continues to see an opportunity to strengthen the performance. This matters because ringing up more sales outside the morning coffee rush can help keep Starbucks’ comps growing at satisfactory clips as year-over-year comparisons get tougher. “If you look at where the business was, there’s still lots of space to add more transactions both in the morning and in the afternoon. We’ve made tremendous progress on both day parts, but there’s still a lot of room for growth,” Niccol said. The introduction of Energy Refreshers is helping in the afternoons, CFO Cathy Smith said. Starbucks is also testing new food options for the afternoons, such as wraps, that could bring more people in the door, according to Smith. Already, the company is seeing more customers purchase a food item with their drink, with Smith saying “food attach” at company-operated stores in the U.S. reached a third-quarter record. She said the strongest gains are in the afternoon. Niccol’s Back to Starbucks investments aren’t cheap, and investors have started to pay closer attention to the bottom line as the honeymoon wears off. One of the top bear cases against Starbucks has been that Niccol’s approach to running the stores is too expensive and won’t deliver the kind of earnings growth that warrants owning the stock. Starbucks delivered strong profits in the third quarter, as the chart below shows. The company’s adjusted operating margin beat expectations, and so did the North America segment. We’re pleased to see margins continuing to improve because Niccol said he would boost comps and then turn to margin expansion. Now, some of the profit gains were driven by tariff refunds that Starbucks collected from the U.S. government during the quarter. This could be one reason why Starbucks’ shares came off their highs of the after-hours session after the conference call concluded. While that’s understandable, the most important thing is that Smith said both companywide and North America operating margins expanded on a year-over-year basis when excluding the impact of tariffs. “We expect the same fundamental drivers that supported margin expansion in Q3 to continue in Q4,” Smith said, pointing to cost-saving initiatives, disciplined execution, and the benefit of top-line growth to get more out of fixed costs such as rent and insurance, known as “sales leverage.” This is a good sign that Starbucks is progressing toward its goal of a 13.5% to 15% operating margin by 2028, which was laid out at Niccol’s first investor day earlier this year. One thing to keep in mind is that this was the first quarter since Starbucks moved its China operations into a joint venture with a Chinese private-equity firm. This is why the company’s total revenue in the quarter showed a slight year-over-year decline. With analysts still getting a feel for how this will change Starbucks’ reported results, it could be a factor behind the small revenue miss for the international segment. That’s the only red to be found, and we’re not sweating it. We continue to believe that an asset-light joint venture is the best approach for the Chinese market, given intense local competition and stark differences in consumer preferences versus its home market. During the third quarter, Starbucks wisely used some of the proceeds in the transaction to pay down $1.3 billion worth of debt — another reason to like the JV decision. We’re reiterating our hold-equivalent 2 rating, but increasing our price target to $120 a share as Wall Street’s earnings-per-share estimates move higher. Guidance With a few months remaining in its fiscal 2026, Starbucks boosted its full-year guidance across multiple important metrics. Here’s where they stand now: Consolidated net revenues “flat to slight” growth year over year, up from “roughly flat” previously. Adjusted EPS in the range of $2.55 to $2.65, an increase from the prior range of $2.25 to $2.45. Global comps growth nearing 6%, compared with 5% or greater previously. U.S. comps growth slightly greater than 6%, up from the prior target of 5% or greater. The company continues to expect 600 to 650 net new coffeehouses globally, including both company-operated and licensed locations. For the ongoing fourth quarter, Starbucks said U.S. comps growth will be at least 6.5%. (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
We’re raising our price target on Starbucks after a home-run quarter
Source link
