Starbucks shares have increased by 24% in 2026 through July 21. This puts the coffee chain on track for its first annual gain since 2021. The stock is also set to outperform the Nasdaq-100 for the first time since 2022, a rarity when large tech companies usually draw all the attention.
The rally shows growing confidence in Starbucks’ operational turnaround. Customer traffic is improving, management has raised profit forecasts, and efforts to simplify stores and boost the loyalty program seem to be working.
However, recovery is not yet complete. Starbucks expects flat revenue in fiscal 2026. The company’s longer-term growth depends on improving customer visits, store operations, cost control, and consumer demand. With shares trading at a forward price-to-earnings ratio of 35.6, much of the expected recovery may already be priced in.
The key question is no longer whether Starbucks is improving. It’s whether the business can improve fast enough to support a stock that has already rebounded.
Improving Traffic Changes the Starbucks Narrative
Starbucks entered this turnaround from a tough spot. The company reported declining year-over-year comparable-store sales in fiscal 2024 and 2025. This metric is crucial in the restaurant industry as it shows if existing locations become more or less productive.
Several issues contributed to this decline. Customers were frustrated with a less welcoming atmosphere, complex menus, and repeated price hikes. Increased competition in the coffee market added more pressure, giving consumers more choices when Starbucks let them down.
Recent traffic data suggest conditions are stabilizing. In April, when Starbucks reported fiscal second-quarter results, management noted an increase in global comparable transactions for the second consecutive quarter.
CEO Brian Niccol mentioned that the U.S. company-operated business recorded transaction growth throughout the day. This is important, as the company needs more than occasional morning rush improvements. Broader traffic gains suggest operational changes may positively influence customer behavior all day.
While the return of transaction growth doesn’t prove Starbucks has fully restored healthy sales, it indicates that the company may be moving past its weakest performance phase.
Store Changes Aim to Rebuild the Customer Experience
Starbucks is working to make its cafes a welcoming “Third Place” between home and work. This strategy acknowledges that the company’s appeal has relied on more than just coffee. Store atmosphere, convenience, customization, and brand familiarity have helped Starbucks build a strong edge.
Management is focused on improving staffing, equipment, and store operations. Better staffing can shorten wait times and ease pressure on employees. Improved equipment may help locations handle complicated orders more efficiently.
The company has also introduced new menu items to boost afternoon sales. Starbucks has traditionally seen strong demand earlier in the day, so increasing afternoon traffic could enhance store productivity without major expansions.
These changes are essential because Starbucks can’t rely solely on new store openings for growth. Existing locations need to serve more customers, operate smoothly, and generate higher sales. Comparable transactions are clear measures of whether the turnaround is reaching customers.
Starbucks Rewards Becomes More Targeted
The company has revamped its Starbucks Rewards program, adding membership tiers based on spending. This structure aims to improve personalization while offering more benefits to loyal customers.
Starbucks now has 35.6 million rewards members in the U.S. This large base provides a direct relationship with frequent visitors. It also opens opportunities to improve engagement, order frequency, and personalized promotions.
A robust loyalty program is especially valuable during a turnaround. It allows Starbucks to communicate directly with customers, promote new products, and encourage visits during slower periods. Membership tiers can direct more rewards to high-spending customers.
However, loyalty membership alone doesn’t guarantee stronger sales. Starbucks must ensure rewards remain appealing without becoming too costly while also providing an experience that encourages customers to return.
Cost Reductions Support Higher Profit Guidance
Starbucks aims for $2 billion in annual expense cuts, and management seems to be making headway. The company raised its full-year adjusted earnings forecast to a range of $2.25 to $2.45 per share.
At the midpoint, this guidance suggests about 10% year-over-year earnings growth. This improvement helps explain the stock’s good performance despite flat revenue expectations in fiscal 2026.
Cost reductions can support earnings while sales are soft, but there are limits on how long profit growth can rely on efficiency alone. A lasting recovery will need stronger revenue and customer traffic, especially if Starbucks wants to maintain service quality and invest in stores.
Management’s long-term plan aims for 5% annual revenue growth by fiscal 2028. Moving from flat revenue in 2026 to that target will require consistent progress over the next two years.
Investors must differentiate between earnings gains from cost savings and those from improved demand. The latter would better indicate sustainable turnaround progress.
Long-Term Earnings Expectations Remain Ambitious
Analyst estimates suggest adjusted earnings per share will grow at a compound annual rate of 19.8% from fiscal 2025 to 2028. This outlook supports the bullish case for Starbucks shares.
If the company restores traffic, improves efficiency, cuts costs, and returns to steady revenue growth, earnings could rebound quickly from recent lows. Starbucks also retains key competitive advantages, like its global brand and extensive store network.
These strengths give the company more room to recover than smaller competitors. Customers already know the brand, so Starbucks doesn’t need to build market awareness from scratch.
Yet, the earnings forecast depends on an ongoing turnaround. Operational changes may take longer than expected. Customer habits might not fully recover, and cost reductions could become tougher to achieve without affecting service.
A weaker economic environment would pose another challenge. Starbucks sells premium products that consumers may cut back on when budgets tighten. Rising traffic is promising, but demand might still be sensitive to changes in consumer confidence.
Starbucks Stock Leaves Little Margin for Error
The stock’s valuation is a notable caution. Starbucks trades at about 35.6 times forward earnings, a high multiple for a company expecting flat revenue.
A high valuation isn’t always unjustified. Investors may accept a premium when they expect strong earnings growth and believe in the company’s competitive strengths. Starbucks has both a strong brand and significant scale.
The issue is that a high multiple allows little room for disappointment. If customer traffic declines, revenue growth takes longer, or cost savings fall short, investors may rethink how much they’re willing to pay for the shares.
The 24% rally has already factored in optimism about the turnaround. Future gains may require clearer signs that better traffic leads to sustained sales, stronger margins, and credible progress toward fiscal 2028 targets.
Dividend Income Provides Another Source of Appeal
Starbucks may appeal to income-focused investors. The company offers a dividend yield of about 2.37%, more than double that of the S&P 500.
Its dividend has increased by 210% over the past decade, and the company has paid dividends for 66 consecutive quarters. This record gives long-term shareholders more reason to stay interested during the operational turnaround.
The dividend doesn’t eliminate valuation risk, but it provides a return beyond stock-price growth. Continued earnings improvement would also boost confidence in maintaining and possibly increasing the payout.
Investors must monitor cash generation and capital allocation. Starbucks needs to balance dividends with investments in store improvements, staffing, and other areas needed for growth.
What the Market Will Watch Next
The next phase of Starbucks’ recovery hinges on whether positive transaction trends continue. Two quarters of improving global transactions are encouraging, but sustained progress in comparable sales is crucial.
Management’s updated profit guidance will also face scrutiny against actual results. Stronger earnings driven by both cost discipline and improving demand would present a more convincing signal than expense reductions alone.
The rewards program, afternoon menu strategy, staffing improvements, and renewed cafe focus will be key indicators of execution. Each initiative must contribute to more frequent visits and better store productivity.
Finally, valuation remains central. The stock can continue to rise if earnings expectations improve, but its current multiple means weaker results could lead to sharper reactions.
Starbucks is enjoying its best stock-market year in several years. Shares have risen 24% in 2026 and are on track to outperform the Nasdaq-100 for the first time since 2022.
This rally is backed by improving customer traffic, operational changes, cost cuts, a record loyalty base, and higher profit guidance. These developments suggest the turnaround is yielding early results.
Still, Starbucks expects flat revenue in fiscal 2026, and its 2028 growth targets require significant progress. With shares trading at a forward earnings multiple of 35.6, the market is pricing in a meaningful recovery.
Starbucks has regained momentum, but the stock’s future will depend on execution, not just optimism. Continued traffic growth and stronger earnings could support the rally, while the high valuation leaves shares vulnerable if the turnaround slows.
