UPDATE 1-Starbucks shares rise as Niccol-led turnaround draws customers back

"We're increasingly focused on North America margins over the coming quarters," said ⁠UBS analysts, but added that some benefits should start to flow through from operational improvement, including better ⁠service time, as well ⁠as its cost-saving efforts over the past year. Starbucks shares have gained about 15.5% so far this year, and are trading at a 12-month forward ‌price-to-earnings ratio of 36.08.

(Updates shares, adds analyst comment, background) By Akriti Shah and Juveria ​Tabassum

April 29 - Starbucks shares rose 5% ​on Wednesday after the world's largest ‌coffee chain ​raised its annual forecast, signaling that CEO Brian Niccol's turnaround plan was beginning to take hold. Niccol, who took over in September 2024, ‌has been trying to revitalize the struggling coffee chain with his "Back to Starbucks" strategy. Under his watch, the company focused on simplified menus, shorter wait times, increased staffing and adding some in-store technology to more ‌efficiently sequence orders.

Customer traffic increased across all income cohorts, Niccol said. The effects of economic uncertainty ‌have not shown up in consumer behavior, with positive sales trends continuing through April, he said. Average visits per Starbucks location, according to Placer.ai data, were up 5.9% during the January-March quarter.

"The recovery is notable for its breadth, indicating ⁠the turnaround is ​structurally sound rather ⁠than dependent on a specific group," analysts at Stifel said. At least five brokerages have raised their price targets on the ⁠stock after the second-quarter results.

"Starbucks drove U.S. spending growth across all income and age cohorts, which points to ​consumers' appetite for on-trend innovation, even against a hazy macro backdrop," Morningstar analysts said. Starbucks' efforts ⁠to refresh its rewards program in March also helped increase frequency of sign-ups led by Gen-Z and Millennials, noted TD ⁠Cowen ​analysts.

But while sales rose, its North American operating margins fell to 9.9% from 11.6% a year ago, reflecting increased labor investment. "We're increasingly focused on North America margins over the coming quarters," said ⁠UBS analysts, but added that some benefits should start to flow through from operational improvement, including better ⁠service time, as well ⁠as its cost-saving efforts over the past year.

Starbucks shares have gained about 15.5% so far this year, and are trading at a 12-month forward ‌price-to-earnings ratio of 36.08.