The next big leg of the Starbucks story — and how CEO Brian Niccol plans to get there

Shares of Starbucks jumped 7% on Wednesday after the coffee giant reported a beat-and-raise quarter, which included greater visibility into CEO Brian Niccol's next phase of the turnaround: restoring profits. Investors were pleased with the results, which included several highlights, including Starbucks' first earnings beat in five quarters and only the second beat since the December 2023 result. It was the first quarter of growth on both the top and bottom line in more than two years. But with the ship righted, Niccol acknowledged that investors will increasingly look for profit growth. Speaking on CNBC's "Squawk on the Street," Niccol said investors should begin to see some of the $2 billion in cost savings identified by management flowing through to profit margins in the second half of the year. "The team is crystal clear on who's accountable for what work in order to achieve those cost savings," Niccol said Wednesday. The optimism in Starbucks' margin recovery story is why Starbucks remains "the best non-data center stock" in the portfolio, Jim Cramer said during the Morning Meeting for Club members on Wednesday. He also acknowledged that improving profitability is the key issue investors still need to see; once Starbucks shows consistent margin growth, the stock will go higher. Jeff Marks, director of portfolio analysis, added that cost savings should become more visible as the company annualizes its Green Apron service model strategy with commodity inflation pressures easing later this year. It will still be a tough challenge. Starbucks' turnaround under Niccol has shown progress in stabilizing same-store sales, but at a cost, as we detailed earlier this week . For the quarter, operating margin was 9.4%, in line with the consensus analyst estimate. But it's still a far cry from management's fiscal 2028 target of between 13.5% to 15%. In a Tuesday post-earnings note, analysts at Citigroup said the "sales at what cost" debate still lives on, arguing that investors will need to see some combination of the company's $2 billion cost-saving plan and stronger sales growth translate into higher profits. Citi increased its price target on Starbucks stock to $101 from $99 and has a buy rating on the name. Analysts at Bernstein on Wednesday struck a similar tone, saying they remain focused on the pace of margin flow-through. While same-store sales trends were solid for the quarter, they noted that Starbucks' higher revenue outlook was not matched by an equally large increase in earnings. Starbucks raised its fiscal 2026 comparable sales guidance to 5% or more, up from 3% or more, a 200-basis-point increase. However, Bernstein said there could be upside ahead as labor productivity initiatives continue and coffee costs potentially ease in the second half of the year. Bernstein has an outperform rating and a $100 price target on the stock. Niccol laid out a path for how the company will get there on Wednesday, starting with sales growth. Starbucks invested in better staffing, faster service times, and technology designed to improve throughput across cafés, drive-thrus, and mobile pick-up. He said those operational changes are helping to create a better customer experience, drive higher revenue, and add one more access point for delivery. SBUX 5D mountain SBUX 5-day stock performance. For the quarter, delivery sales are up 30% year to date and contributed to traffic and ticket growth. Niccol said he sees store expansion as another way to keep the top line accelerating, calling out the "tremendous opportunity in the middle of the country" after resetting its store portfolio by closing underperforming locations. Menu innovation is another piece of the puzzle. Niccol highlighted strong customer reception to Starbucks' 1971 Dark Roast launch, which he called "one of the most successful coffee launches we've had in a really long time," as well as customizable energy refreshers. Starbucks also seems to be addressing the long-running challenge in China. The company formed a joint venture with Boyu Capital, a Chinese private equity firm, earlier this month, which should allow management to focus more on improving its U.S. operations. There are other opportunities to get margins back through sales that Jim pointed out, including improving the "dayparts" or the morning peak, as well as scheduling orders for customers who want to plan their visit up to one hour ahead through the mobile app. Our confidence in the progress of the second part of the turnaround and a strong second-quarter showing compelled us to increase our price target on Starbucks stock to $115 from $100. We're keeping our rating at 2 , which means we'll wait for a pullback before buying more. (Jim Cramer's Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.