Starbucks faces earnings test as investors eye turnaround

Starbucks prepares to report its fiscal fourth-quarter earnings, a pivotal moment for CEO Brian Niccol's turnaround plan as the coffee chain braces for the critical holiday period. Analysts anticipate earnings of 71 cents per share on sales of $9.22 billion, marking a 37% increase from last year's figures but a 3.7% fall compared to the previous quarter's $0.85 per share. Revenue is expected to decline 3.7% year-over-year, as Starbucks continues to trim its store locations and emphasize quality over quantity.

The consensus differs from the firm's robust third-quarter performance, in which Starbucks beat earnings per share (EPS) forecasts by 29% and reported sales of $9.30 billion. EPS estimates have risen 0.91% over the last 60 days, although they have stayed unchanged over the past week, indicating that analysts have generally accepted their projections prior to the print.

The stock carries a Buy rating with an average price target of $109.93, suggesting a potential 6.5% increase from its current $103.20 share price. Starbucks' shares currently sit near the midpoint of its 52-week range of $77.99 to $110.51.

The primary concern lies in whether U.S. same-store sales can reach or surpass expectations of around 7.5% growth, as per analysts. The company achieved 7.9% comparable sales growth in the U.S. during the third quarter, propelled by heightened customer transactions following operational enhancements. Investors will closely scrutinize if this momentum endures into the fourth quarter despite more demanding comparisons.

Additionally, fiscal 2027 guidance is pivotal. Analysts project U.S. same-store sales growth of 3% to 4% and EPS around $3.16, according to recent analyst notes. Some firms have highlighted that attaining the higher end of the company's fiscal 2028 margin and EPS targets—13.5% to 15% and $3.35 to $4.00, respectively—will need more substantial progress than what is currently projected.

The stability of transaction growth forms the third crucial aspect. Niccol's strategy has focused on operational improvements, such as the Green Apron Service program, Smart Queue order sequencing, and store renovations aimed at reviving the coffeehouse experience. Over the past nine months, more than 1,000 locations have undergone refurbishments.

However, as one analyst noted, the pace of same-store sales growth required to meet the optimistic end of FY28 guidance remains a significant challenge, as flow-through remains below historical levels. With brand metrics reportedly at their five-year peak and the crucial holiday season looming, Starbucks' results on Thursday will be put to the test to determine if Niccol's back-to-basics approach can transform recent sales momentum into lasting earnings growth, or if investors have already incorporated the recovery into their assessments.