Brian Niccol's Starbucks Turnaround Is Quietly Working -- Even With Profit Cut in Half. The July 29 Test Comes Next.

Starbucks (NASDAQ: SBUX) earned about half as much in fiscal 2025 as it did the year before. Yet the stock is acting as if the opposite happened. Shares sit near $105 as of this writing, within about 4% of their 52-week high of $109.23.

That disconnect is the whole story with this stock right now. The market is paying up for CEO Brian Niccol's turnaround before it fully shows up in profits. And based on the number that leads this kind of recovery (customer traffic), there's a chance that the market has it right.

But can the turnaround's momentum persist?

The next piece of evidence arrives Wednesday, July 29, when the coffee giant reports fiscal third-quarter results.

Image source: Starbucks.

The traffic came back first

Comparable store sales, which measure sales at locations open at least a year, trace the turnaround quarter by quarter. Starbucks' global comparable sales grew 1% in the fourth quarter of fiscal 2025 -- its first increase in seven quarters. They rose 4% in the fiscal first quarter of 2026. Then, in the fiscal second quarter (the period ended March 29, 2026), they climbed 6.2%. That is three straight quarters of acceleration.

Even better is what's driving the growth. Global transactions rose 3.8% in the fiscal second quarter, and in the U.S., comparable sales jumped 7.1% on a 4.3% increase in transactions.

More customers are simply walking through the doors. That's the metric that spent the depths of the slump moving in reverse. The international business is participating as well, with comparable sales up 2.6% on 2.1% transaction growth.

The recovery is reaching the income statement, too. Fiscal second-quarter revenue rose 9% year over year to $9.5 billion. The company's GAAP operating margin expanded 180 basis points to 8.7%, and earnings per share rose 32% year over year to $0.45. Non-GAAP (adjusted) earnings per share grew 22% to $0.50.

"Our second quarter marked the turn in our turnaround as our Back to Starbucks plan drove both top and bottom line growth," said Niccol in the company's fiscal second-quarter earnings release.

Management raised its outlook alongside those results. Starbucks now expects global and U.S. comparable sales to grow at least 5% this fiscal year, up from prior guidance of about 3%, with non-GAAP (adjusted) earnings per share of $2.25 to $2.45.

The profit hole it's still climbing out of

About that halved profit. Starbucks earned $1.63 per share in fiscal 2025, down from $3.31 in fiscal 2024. Net income came in at just $1.9 billion, versus $3.8 billion the year before.

The collapse wasn't primarily a demand problem -- it was spending. Niccol's Back to Starbucks plan poured money into store labor to fix slow service. And the year absorbed $892 million in restructuring charges along with inflation in coffee costs.

That context is what makes the current stock price demanding. At about $105, Starbucks trades at a price-to-earnings ratio of about 45 based on the midpoint of this year's adjusted earnings-per-share guidance. A multiple like that assumes the traffic recovery continues and margins climb well beyond this year's guided levels for years to come. In other words, the market is already pricing in a completed turnaround.

So July 29 matters. The items worth checking are U.S. comparable sales and transactions holding anywhere near the fiscal second quarter's pace, operating margin continuing to expand, and any change to the full-year outlook. Comparisons against weak year-ago quarters get harder from here, so the growth rates may naturally cool even if the recovery stays on track.

To be fair to the bulls, turnarounds led by traffic tend to be the durable kind. Price increases can be copied or reversed. Getting millions of customers back into the habit of visiting is harder to fake, and that's what the transaction growth suggests is happening.

But the stock's valuation leaves little room for a stumble. If margins recover on schedule, today's buyers will probably do fine. If the recovery pauses for even a couple of quarters, a stock priced this richly could give back a lot of its gains quickly.

Overall, I'd call the turnaround itself on track -- and the stock fully priced for it. If I owned shares, I'd hold them and let Niccol keep executing. For new money, however, I'd wait: either for a better price, or for the July 29 report to show the margin recovery is running ahead of what the company has promised.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.