Starbucks Corporation SBUX stock has jumped 12.5% over the past month, significantly outpacing the industry’s modest 3.4% growth. Even more impressive, SBUX has defied broader market trends, soaring while the S&P 500 dipped 0.3% in the same period.

Even among the top industry players, Starbucks stands tall, outperforming McDonald's Corporation MCD, which has risen 5%, and leaving Chipotle Mexican Grill, Inc. CMG, down 12.2%, and Domino's Pizza, Inc. DPZ, up 5.7%, in the rearview, in the past month.

Price Performance

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Back to Starbucks & Other Strategies Aid SBUX

Starbucks' recent gain has been driven by better-than-expected first-quarter fiscal 2025 results and growing confidence in new CEO Niccol's bold turnaround strategy. To boost sales growth globally and tackle the negative market impacts to some extent, SBUX aims to mainly focus on implementing its “Back to Starbucks” plan, along with realizing gains from supply-chain efficiencies and annualization of pricing.

Also, its efforts toward menu simplification, effective marketing campaigns and the removal of the extra charge for non-dairy milk customizations are expected to drive growth in fiscal 2025.

Starbucks plans to reduce beverage and food stock-keeping units (SKUs) by 30% by the end of fiscal 2025. This initiative is designed to enhance operational efficiency while fostering innovation in response to evolving customer preferences. SBUX also intends to leverage insights from its highly engaged baristas, as seen with the successful launch of its Lavender lineup. Additionally, the company remains committed to capitalizing on cultural trends, as demonstrated by the popularity of the Dubai Matcha offering.

To strengthen its positioning as a community hub, Starbucks is reintroducing condiment bars across all U.S. company-operated stores. The company rolled out ceramic mugs, handwritten cup notes and new service standards to elevate the in-store experience. Also, it has expanded free refills on brewed coffee and tea to non-Starbucks Rewards customers.

The company aims to focus on reducing the number of new stores and renovations in fiscal 2025, and accommodate redesigning while unlocking capital to support its broader turnaround.

The company opened 377 stores globally in first-quarter fiscal 2025, with strong incremental revenue contributions. Starbucks sees potential to increase its U.S. store count, particularly in growth markets like Texas and the Southeast.

Strong performance in Japan, South Korea and Italy, which serve as examples for improving the U.S. business, bode well. China remains a priority, with ongoing strategy adjustments to stabilize and strengthen performance in the market.

Factors Likely to Hinder SBUX Stock Movement

Starbucks’ comparable store sales have been affected by a challenging operating environment, led by reduced customer traffic. In the fiscal first quarter, global comps declined 4% due to a 6% reduction in comparable transactions. China’s comparable store sales slipped 6%, which was attributed to a 4% decline in average tickets and a 2% fall in comparable transactions. The China market for the company is hurting due to intensified competition and a soft macro environment impacting consumers’ sentiments.

Challenging consumer environments in the Middle East, Southeast Asia and parts of Europe added to the downside. The company anticipates the headwinds to persist for some time.

In the fiscal first quarter, Starbucks’ operating margin contracted 390 basis points year over year to 11.9%. The decline was mainly due to deleveraging and investments in the “Back to Starbucks” plan, including store partner wages, benefits and hours, and the removal of the extra charges for non-dairy milk customizations.

Going forward, the company remains cautious of continued complex macroeconomic challenges across multiple markets. It expects general and administrative expenses (as a percentage of revenues) in the fiscal second quarter to be up year over year due to a hike in several expenses, including near-term restructuring charges, costs to support the organization, and severance pay and related benefits.

SBUX’s Estimate Revision Trend

The Zacks Consensus Estimate for SBUX's 2025 and 2026 EPS moved down in the last 30 days, indicating negative sentiment among analysts for the company's earnings. The Zacks Consensus Estimate for 2025 and 2026 EPS have moved down 2.9% and 0.8%, respectively, in the past 30 days.

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A Look at Starbucks’ Valuation

The SBUX stock is trading above the industry. With a forward 12-month price/earnings ratio of 34.71X, it exceeds the industry average. The SBUX stock is priced higher than the broader Retail-Wholesale sector’s 26.74X and the S&P 500’s 22.23X.

P/E (F12M)

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SBUX Investment Strategy

Starbucks' recent stock price increase reflects optimism surrounding its turnaround strategy, operational efficiencies and efforts to enhance the in-store experience. The company's focus on streamlining operations, leveraging consumer trends and expanding in key growth markets is promising for long-term stability. However, challenges persist, including declining comparable store sales, intensified competition in China and macroeconomic headwinds impacting margins.

While existing investors may benefit from holding SBUX as it navigates its strategic shift, new investors should wait for improved earnings visibility and a more attractive valuation before entering, given the current premium pricing and near-term uncertainties. SBUX currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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