Starbucks Turnaround Gains Momentum as Traffic Growth and Store Improvements Lift Sales

Starbucks Sales Growth Signals Broader Turnaround Progress

Starbucks (SBUX) delivered another quarter of improving customer traffic and store performance, giving investors fresh evidence that CEO Brian Niccol's "Back to Starbucks" turnaround is gaining traction.

Global comparable-store sales rose 7.9% in the fiscal third quarter, exceeding Wall Street expectations of 5.7% and accelerating from 6.2% growth in the previous quarter. Adjusted earnings reached $0.85 per share, while revenue totaled approximately $9.3 billion. Starbucks also raised its full-year earnings and comparable-sales outlook.

Key Points

• Global comparable-store sales increased 7.9%, supported by higher transactions and average ticket, while U.S. comparable sales also rose 7.9%.
• Adjusted earnings reached $0.85 per share and non-GAAP operating margin improved to 14.4%, as store execution and cost initiatives supported profitability.
• Starbucks raised its fiscal 2026 adjusted EPS outlook to $2.55-$2.65 and expects U.S. comparable sales growth slightly above 6% for the full year.

Traffic Growth Strengthens Starbucks’ Turnaround

Starbucks' third-quarter results showed improvement across several of the operating measures central to its turnaround.

Global comparable-store sales increased 7.9%, marking a fourth consecutive quarter of growth. Comparable transactions rose 4.2%, while average ticket increased approximately 3.5%. U.S. comparable sales also advanced 7.9%, supported by a 4.2% increase in transactions and a 3.6% increase in average ticket.

That traffic component is important because the sales improvement was not driven solely by customers spending more per visit. Pricing contributed less than one percentage point to ticket growth, while food attachment at U.S. company-operated stores reached a third-quarter record.

North America comparable sales increased 8.1%, while North America net revenue rose 7% to $7.4 billion.

The quarter also showed stronger profitability. Adjusted earnings were $0.85 per share, compared with $0.50 a year earlier and above Wall Street expectations. Non-GAAP operating margin expanded 430 basis points to 14.4%.

Free cash flow reached approximately $1.35 billion, up from $434 million a year earlier.

Revenue was approximately $9.3 billion and declined from the prior year, reflecting the April conversion of Starbucks' China retail operations into a licensed joint venture with Boyu Capital. Boyu owns 60% of the retail operation, while Starbucks retains a 40% stake and continues to own and license the brand.

The change transferred 7,991 company-operated stores to licensed operations, affecting reported international revenue without representing a comparable decline in customer demand.

Why Are Customers Returning to Starbucks?

The turnaround has centered on improving the basic coffeehouse experience while making stores faster and more consistent.

Starbucks has invested $500 million in its Green Apron Service Standards, which Niccol described as the operating foundation of the "Back to Starbucks" strategy. The initiative focuses on staffing, service standards, coaching and store-level accountability.

Starbucks said it met target service times across all access points during the third quarter despite higher traffic. Its Smart Queue technology is also being used to improve how digital orders are sequenced and coordinated with customer arrivals.

Product availability has improved as well. Starbucks said food availability is now close to 99%, approximately 10 percentage points better than a year earlier. Management stability also strengthened, with the percentage of North American store leaders who have been in their positions for at least two years rising roughly seven percentage points year over year.

Physical stores are another part of the strategy. Starbucks' "uplift" program adds updated seating, warmth and other coffeehouse elements to existing locations without taking stores offline.

The company surpassed 1,000 North American store uplifts during the quarter, reaching its fiscal 2026 target ahead of schedule after completing more than 650 during Q3 alone. Starbucks now expects to complete at least 1,500 by the end of the fiscal year and accelerate the program further in fiscal 2027.

Management said the upgraded stores are generating positive transaction trends across formats, channels and dayparts.

The turnaround is also showing up in customer engagement. Starbucks reported 35.8 million 90-day active Rewards members in the U.S., while brand affinity, consideration and purchase intent reached five-year highs.

Sales growth during the quarter was broad-based across generations, income groups, Rewards members and non-members.

Afternoon Growth and Store Expansion Become the Next Test

Starbucks is now looking beyond its traditional morning business for another source of transactions.

The company has identified the period after 11 a.m. as a significant opportunity, with midday and afternoon sales representing $11 billion in business. Niccol said transactions are growing throughout the day, although afternoon growth remains below the pace seen in the morning.

Starbucks is using beverages, food, improved store routines and marketing to address that gap.

Refreshers generated double-digit year-over-year revenue growth in the U.S. during the third quarter. Customizable energy beverages, including Blue Coconut and Mango options, helped expand the menu into additional occasions beyond the morning coffee routine.

The company is also testing wraps and plans to test sparkling beverages called Spritzers in select markets. Digital menu boards, expected to reach 80% to 90% of restaurants by September, are intended in part to give Starbucks more flexibility to merchandise afternoon products.

Food attachment posted its strongest gains during the afternoon in Q3, providing another indication that the daypart is responding to the company's changes.

Starbucks also continues to refine its store portfolio. It opened 175 net new stores globally during the quarter and ended Q3 with 41,304 locations, including 18,371 in North America.

The company expects 600 to 650 net new coffeehouses during fiscal 2026, representing global net store growth of approximately 1.5%. North American company-operated growth is expected to remain modest in fiscal 2027, while international markets are expected to account for more of the expansion.

Management is also continuing to evaluate underperforming North American locations. Some sales from closed stores have transferred to nearby Starbucks locations, contributing to comparable-store sales growth.

CFO Catherine Smith said slightly less than half of the third-quarter comparable-sales increase was related to closures, transferred sales and delivery growth, with the remainder coming from store performance, menu initiatives and innovation.

What It Means for Investors

Starbucks' fiscal third quarter provided several measurable signs that the turnaround is moving beyond operational changes and into financial performance.

Comparable sales accelerated to 7.9%, transactions increased, operating margin expanded, free cash flow improved and management raised its full-year outlook. The growth in transactions is particularly relevant because it shows more customers are visiting rather than sales growth relying primarily on price increases.

Starbucks now expects fiscal 2026 adjusted earnings of $2.55 to $2.65 per share, up from its previous forecast of $2.25 to $2.45. Global comparable sales are expected to grow close to 6% for the year, while U.S. comparable sales are expected to increase slightly more than 6%.

For the fourth quarter, Starbucks expects U.S. comparable sales growth of at least 6.5%.

The next phase will test whether Starbucks can sustain transaction growth as comparisons become more difficult and consumer conditions remain variable. Management is also trying to expand afternoon transactions, continue improving service, accelerate coffeehouse upgrades and build a stronger pipeline of new stores.

The China joint venture also changes how the company's international business appears in its financial statements. Reported international revenue declined sharply following the conversion of thousands of company-operated stores to licensed locations, while Starbucks retains a 40% stake and continues to license the brand.

The third-quarter results therefore reflect both a recovering core business and a changing operating structure.

Conclusion

Starbucks' turnaround delivered another quarter of measurable progress, with stronger traffic, comparable sales, margins and cash flow supporting management's decision to raise its fiscal 2026 outlook.

Global and U.S. comparable sales increased 7.9%, while customer transactions rose 4.2%. Adjusted earnings reached $0.85 per share, and non-GAAP operating margin expanded to 14.4%.

Operational initiatives are also becoming more visible. Starbucks met its service-time targets, improved product availability, surpassed its original target of 1,000 North American store uplifts and is now targeting at least 1,500 by fiscal year-end.

The focus is increasingly shifting toward sustaining that momentum. Afternoon transactions remain an opportunity, new menu products are being tested, store upgrades are accelerating, and management continues to refine the location portfolio.

With Starbucks now forecasting U.S. comparable sales growth of at least 6.5% in the fourth quarter, the next results will provide another measure of whether the "Back to Starbucks" strategy can maintain its recent pace.

FAQs

Why did Starbucks stock rise after earnings?

Starbucks reported stronger-than-expected fiscal third-quarter comparable sales and adjusted earnings while raising its full-year outlook. Global comparable-store sales increased 7.9%, adjusted earnings reached $0.85 per share, and non-GAAP operating margin improved to 14.4%.

How much did Starbucks same-store sales grow?

Global comparable-store sales rose 7.9% in the fiscal third quarter. U.S. comparable sales also increased 7.9%, supported by a 4.2% increase in transactions and a 3.6% increase in average ticket.

What is Starbucks’ new fiscal 2026 outlook?

Starbucks expects fiscal 2026 adjusted earnings of $2.55 to $2.65 per share. Global comparable sales are expected to grow close to 6%, while U.S. comparable sales are expected to increase slightly more than 6%. Fourth-quarter U.S. comparable sales are expected to grow at least 6.5%.

How is Starbucks trying to grow afternoon sales?

Starbucks is expanding beverages and food while improving afternoon store routines. Refreshers delivered double-digit U.S. revenue growth in Q3, while the company is testing wraps and plans to test sparkling beverages called Spritzers in select markets.

What is Starbucks doing to improve its stores?

Starbucks is expanding its coffeehouse uplift program, which updates existing locations without taking them offline. The company surpassed 1,000 North American uplifts during Q3 and now expects to complete at least 1,500 by the end of fiscal 2026.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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