Will Starbucks see turnaround percolate as Niccol leans into Green Apron initiative?

The Starbucks (NASDAQ:SBUX) turnaround under the direction of CEO Brian Niccol is gathering momentum, but fiscal third quarter results underscored the task ahead to improve profits and restore positive same-store growth.

The coffee chain beat top-line expectations and realized improved traffic in China. But North American traffic remains sluggish (albeit not as bad as expected) and margins continue to be squeezed by coffee inflation and increased operational costs.

As the company accelerates its Green Apron initiative to improve customer satisfaction with increased staff, better training, and improved technology to speed service, margins will continue to come under pressure given the anticipated $500M labor investment.

“It seems like the company is planning to be on offense next year once its new operating model is in place,” said Morgan Stanley’s Brian Harbour, adding that while there will be debate how this will play out, “we’d be more inclined to stay constructive.”

Wells Fargo’s Zachary Fadem agrees. While fiscal Q3 results were “messy” Fadem thinks the narrative improves “as focus shifts to easier Q4 compares, more restructuring and FY25 innovation.”

Not everyone, however, is convinced Niccol can resuscitate Starbucks (NASDAQ:SBUX) within the year. Evercore ISI’s David Palmer puts the “multi-faceted” and “complex” recovery out several years.

“Our 2-year upside scenario assumes a strong margin growth in late FY27 and FY28 that will accompany a robust sales recovery, supply chain productivity savings and SG&A savings/leverage,” Palmer says.

Seeking Alpha analyst Alan Galecki is less convinced: “Key business metrics are deteriorating; comparable store sales and transactions are falling, margins are shrinking, and free cash flow is stagnant [putting] dividend safety at risk.” Galecki advises investors to sell Starbucks’ (NASDAQ:SBUX) “dramatically overpriced” shares.

On the earnings call, CEO Brian Niccol accepted the company’s challenges and prior mismanagement, but assured analysts that despite Wall Street’s reservations, the turnaround is “ahead of schedule.”

“This transformation lays the operating foundation for our ambitious innovation agenda, and I’m confident by the end of 2026, Starbucks in the U.S. will look and feel very different,” Niccol said on the company’s earnings call.

But with margins under strain, traffic uneven, and investor skepticism mounting, the clock is ticking on Starbucks’ high-stakes turnaround.

After peaking at a 3-month high at Wednesday’s open, Starbucks (SBUX) shares surrendered opening gains and struggling to avoid a third consecutive day in the red.