Starbucks (NDQ:SBUX): Up over 25% in 2026, investors think the worst of the past is behind it

Starbucks (NASDAQ: SBUX) has spent the better part of two years as one of the more uncomfortable holdings in any consumer discretionary portfolio. A protracted earnings decline, a revolving door at the CEO level, and deteriorating comparable store sales in both its core North American market and the critical China segment combined to produce a stock that underperformed the S&P 500 by more than 80 percentage points over five years.

In 2026, that narrative has shifted materially and Starbucks has gained more than 25% year to date. It is fair to say that for the first time in over two years, the operational evidence is beginning to match the recovery story. But whether the re-rating is complete or the market is still catching up is the central question for investors.

Starbuck’s (NDQ:SBUX) history

Starbucks was founded in Seattle in 1971 by Jerry Baldwin, Zev Siegl and Gordon Bowker as a single store selling roasted coffee beans and equipment. The company’s transformation into the global coffeehouse chain it became was almost entirely the work of Howard Schultz, who joined as director of retail operations in 1982, visited Milan and returned convinced that the Italian espresso bar model could be transplanted into American daily life. Schultz acquired the company in 1987 and listed it on NASDAQ in 1992, by which point the concept had already proven its commercial durability.

The subsequent three decades were a story of relentless geographic and format expansion, punctuated by the occasional course correction. We know of course it has never taken off in Australia given our cultural preferences, and even though Starbucks was not a failure everywhere, Australia was not an isolated case. Schultz returned to the CEO role during a period of overextension in 2008, rationalised the store network and restored unit economics before handing the business back to Kevin Johnson.

Johnson managed a steady if unspectacular period of growth through the mid-2010s before the company ran into more structural headwinds: rising labour costs, the complexity of an overloaded menu, and a mobile ordering system that had inadvertently degraded the in-store experience by creating congestion rather than convenience.

By the time Brian Niccol arrived in September 2024, having been recruited directly from Chipotle where he had executed a textbook operational recovery, Starbucks had delivered three consecutive quarters of negative comparable store sales.

What Went Wrong and What Has Changed

The diagnosis Niccol arrived at was not complicated, though the remediation has required genuine discipline to execute. The menu had grown unwieldy, slowing service times and frustrating both baristas and customers. The mobile ordering surge had created a two-tier in-store experience that prioritised throughput over connection. Customisation had spiralled to a point where the average order bore little resemblance to what the business had been designed to deliver efficiently.

The response, branded as the “Back to Starbucks” strategy, involved simplifying the menu to reduce preparation complexity and speed up service, redesigning the sequencing of orders between mobile and counter channels, restoring a dress code and operational standards for store staff, and trimming a layer of middle management to flatten the organisation. Niccol also committed to 400 net new company-operated stores by 2028, signalling confidence in the physical format rather than a retreat from it.

In January 2026, Starbucks hosted an Investor Day in New York at which Niccol and CFO Cathy Smith reaffirmed the turnaround timeline and unveiled coffeehouse format innovations alongside a reimagined loyalty programme. The revamped rewards structure, launched in March 2026, introduced three membership tiers (Green, Gold and Reserve) designed to deliver more meaningful personalisation and drive higher spend from the most engaged customers.

Why the Stock Has Gained More Than 25% in 2026

The market’s re-rating has been driven by two quarters of results that, for the first time, provided tangible evidence that the operational work is translating into financial outcomes. Starbucks’ most recent result was its result for Q2 of FY26 which was reported on 28 April given the company uses an October to September financial year. The company delivered both revenue and profit growth for the first time in over two years, with global comparable store sales rising 6.2%, driven largely by higher customer transactions in the United States, where traffic growth hit a three-year high.

The company’s revenue came in at US$9.53bn, up 9% year on year, with North America comps climbing 7%, prompting four major brokers to raise price targets to the US$105–115 range. The traffic composition was particularly encouraging: US comparable transactions rose 4.3% year on year, with the company crediting faster service times, improved store execution and a renewed focus on the in-store experience for the gains.

The first quarter had provided the initial signal. Q1 results demonstrated that the “Back to Starbucks” strategy was working ahead of schedule, with sales momentum driven by more customers choosing Starbucks more often. Two consecutive quarters of positive inflection, after six of decline, is a meaningful data point.

Turning to the situation in China, Starbucks has entered into a joint venture with Boyu Capital, which now holds a 60% stake in the China retail operations while Starbucks retains 40% and continues to own and license the brand and intellectual property. The joint venture oversees approximately 8,000 company-operated coffeehouses, which will transition to a licensed operating model, with a long-term aspiration to grow to as many as 20,000 locations.

The strategic rationale is that Starbucks will extract brand royalties and capital-light growth exposure while Boyu’s local operational expertise will manage the execution complexity. China comparable sales in Q2 grew only 1%, confirming that the market remains structurally challenged in the near term.

The Outlook: Consensus Estimates and What They Imply

The consensus earnings trajectory isn’t that much for FY26 with $2.7bn compared to $2.4bn for FY25. But estimates spiral upward thereafter, calling for US$3.5bn in FY27, $4.2bn in FY28 and US$5.8bn for FY30. Clearly, this reflects an expectation that margin recovery accelerates once the cost rationalisation programme is fully embedded. Revenue growth is modest with the top line estimated to be US$37.7bn in FY26 compared to US$37.2bn in FY25. But in FY27, analysts call for US$38.6bn, followed by $40.9bn in FY28 and US$46.4bn in FY29.

However, even if this is realised, it is not a linear path. North American operating margins contracted 170 basis points in Q2 FY2026 due to labour, product mix shifts, tariffs and green coffee costs, a reminder that the cost side of the ledger remains under pressure even as the revenue side recovers.

Even though analysts expect long-term growth, the mean target price is $108.58 vs the $108.38 Starbucks is at now.

Risks Worth Monitoring

We think there are 3 risks which merit ongoing attention. First first of these is the situation in China. Although the joint venture structure removes direct operational risk, it also limits Starbucks’ ability to control the pace of recovery in its second-largest market. A prolonged softening in Chinese consumer spending would constrain royalty income and weigh on the long-term store count aspiration.

The second is margin delivery. Analysts’ FY27–30 bottom line forecasts embed assumptions about operating leverage that have yet to be demonstrated at scale. If labour cost inflation continues to outpace pricing capacity, the consensus earnings trajectory becomes optimistic.

And the third is execution continuity. Although Niccol’s track record at Chipotle is relevant, that doesn’t mean it is automatically transferable. The turnaround at Starbucks involves far greater geographic complexity and a franchise-heavy international structure that limits direct management intervention.

Conclusion

Starbucks is a business that was broken operationally rather than structurally, and the early evidence from FY26 suggests Niccol’s diagnosis and prescribed remedies were substantially correct. The stock’s 25%-plus gain reflects a market that is beginning to believe the turnaround is real, supported by two quarters of comparable sales acceleration, a restructured China exposure and a loyalty programme evolution that should improve customer lifetime value.

Consensus estimates imply implied net profit growing from US$2.72bn in FY26 to US$5.79bn in the next few years, which is an ambitious but not implausible trajectory if operational execution holds. The margin recovery story is the central variable. If it delivers, the current share price likely undervalues the business. If it disappoints, the re-rating will prove premature. We believe the balance of probability has shifted meaningfully in the former direction.