Starbucks has a growing problem even as customers return

Every fall, I find it fascinating how a seasonal drink can turn an ordinary coffee run into something people genuinely look forward to.

Starbucks has mastered that anticipation, from the return of Pumpkin Spice Latte (PSL) on Aug. 25 to the new Chaider and other fall favorites to limited-time offerings that give customers another reason to walk through its doors. But the real story is what happens at the register.

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And customers appear to be responding. Starbucks ended its third quarter with 41,304 stores, two-thirds of them licensed and 16,933 in the U.S.

According to its Q3 fiscal year 2026 results, Global comparable sales rose 7.9%, driven by a 4.2% increase in transactions and a 3.5% increase in average ticket.

CEO Brian Niccol said the results prove his Back to Starbucks plan works and that the company is focused on becoming “the world’s greatest customer service company.”

However, sales are not the part Wall Street is debating.

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Starbucks’ sales are strong, but profit is the question

In a preview note shared with me at TheStreet, Morgan Stanley kept an Overweight rating and $115 price target on Starbucks (SBUX), 18% above its $96.88 current share price.

In “F4Q Preview: On To Year Three; Remain OW,” the bank wrote that the stock “remains debated,” even as the top line delivers.

It expects North America same-store sales of 7% in the fiscal fourth quarter, slightly above Street expectations, and raised its international estimate to 3% from 2%. It sees earnings of 71 cents per share. Starbucks reports on Oct. 29.

Investors have rewarded the comeback, with total returns of 17.14% year to date and 19.90% over the past 1 year through Oct. 15, according to Yahoo Finance. Morgan Stanley notes the stock has since pulled back to what it considers a more normal multiple. Currently, SBUX trades at $96.88.

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Independent data supports the sales story, with caveats. Bloomberg Second Measure card data and Placer.ai foot traffic point to a solid quarter that stayed choppy, with bumps around menu launches.

Data show customer visits rose year over year in each of the past 12 months, with traffic climbing 2.6% in Q2 2026, despite rising gas prices and broader economic uncertainty pressuring discretionary spending.

Morgan Stanley noted that Sensor Tower shows daily active users on the U.S. app softened from the prior quarter, though two-year comparisons improved late in September.

The limited return of the Unicorn Frappuccino drove Starbucks’ best North American company-operated sales weekend on record, and the Aug. 25 fall menu was its strongest fall launch ever.

Starbucks’ Arabica prices have fallen to about $2.75 a pound from a peak near $4 in 2025, helped by better growing conditions in Brazil and Vietnam.

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Why Starbucks’ profit still trails its sales

Whenever I see a coffee shop packed with customers, I can’t help but wonder how much of that extra business actually translates into profit. More orders might mean stronger sales, but they also mean busier staff, longer queues, and higher operating costs.

Those busy counters come with costs. Starbucks has spent heavily on its baristas, including its Green Apron Service labor investments. Morgan Stanley says fiscal 2027 is about keeping more of each sale as those investments are lapped.

TheStreet noted Starbucks also closed about 250 North American stores at the end of the quarter, which the bank says had almost no fourth-quarter sales impact but leaves a smaller store base next year.

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Coffee is turning from a headwind into a help. Arabica prices have fallen to about $2.75 a pound from a peak near $4 last year, TheStreet’s coverage noted, helped by better growing conditions in Brazil and Vietnam.

Morgan Stanley still flags commodities as a risk. Fiscal first-quarter consensus for comparable sales is 4.7%, and the bank thinks recent trends support a result at or above that. It warns the closures may weigh on early fiscal 2027 sales as last year’s benefit rolls off.

China remains the weak spot. Starbucks’ daily active users there fell 23% from a year earlier in August, though they have stabilized over four months. Rival Luckin Coffee’s users reaccelerated to 24% growth.

Morgan Stanley sees upside if Starbucks keeps more of each sale

The bank forecasts fiscal 2026 earnings of $2.62, fiscal 2027 earnings of $3.18 against a $3.15 Street view, and fiscal 2028 earnings of $3.70, inside the company’s $3.35 to $4.00 target range. It expects fiscal 2027 guidance to bracket a low $3 EPS and says earnings beats will drive the stock.

The scenarios are wide. The bull case of $145 assumes 7% same-store sales growth in 2027 and 2028 and operating margins above 15% by 2028. The base case of $115 assumes 3% to 4% global same-store sales growth, 3% to 5% unit growth, and margins near 15%. The bear case of $63 assumes flat sales through 2028 amid a weak economy and more competition.

Morgan Stanley believes the recovery is still in its early stages, and the stock has yet to fully reflect its potential. If Starbucks proves on Oct. 29 that it can turn a busy counter into higher profit, the debate may shift from whether the comeback is real to how far earnings can rise.