Starbucks shares rose more than 3% in extended trading on Tuesday, even though the coffee chain reported mixed quarterly results. Despite this, we heard enough positives to confirm that CEO Brian Niccol's turnaround remains firmly on track. Revenue increased 3.8% year over year to $9.46 billion in the fiscal 2025 third quarter, beating the $9.31 billion expected by analysts, according to LSEG. Adjusted earnings per share (EPS) fell 46% year over year to 50 cents. Given one-time costs in the quarter primarily associated with a leadership conference in Las Vegas, it's not clear if the reported EPS figure is comparable to the LSEG consensus estimate of 65 cents. SBUX YTD mountain Starbucks' year-to-date stock performance. Bottom line When you analyze an earnings report of a company in the early stages of a turnaround, you must remember to grade it on a curve. The results will be uneven, especially in the quick service restaurant industry, because some stores are upgraded well before other locations. In that context, it's no surprise that Starbucks delivered another messy quarter, but there were signs of stabilization with seven of its top 10 markets outside the United States delivered positive same-store sales growth, which is a good sign for the future because, right now, the bulk of Niccol's revitalization efforts are focused domestically. Same-store sales — sometimes also called comparable store sales, or comps — is a critical metric in the restaurant industry. More importantly, Starbucks' last three months were more about figuring out what changes to make to set it up for long-term success. Niccol described this dynamic perfectly on the earnings call when he said, "this quarter was really all about laying the operational foundation for Starbucks." Starbucks appears to have found the right strategy to return to positive comparable sales growth through its "Green Apron Service" approach. This initiative, which is the largest investment in company history, focuses on investments in labor and technology to improve the customer experience and speed up service times. Starbucks (SBUX) Why we own it: Starbucks has one of the most recognizable brands of any restaurant. But over the last few years, operations have been challenged by store inefficiencies and a slow recovery in China. Under the leadership of turnaround artist Brian Niccol, we expect operations will improve and return to growth. Competitors: Dunkin, McDonald's, Panera, Dutch Bros. Initiation date: Aug. 22, 2022 Portfolio weight: 2.53% Most recent buy: April 22, 2025 The Green Apron Service is eight weeks into its 1,500 store test program, the company said, and so far, the results have been highly encouraging. Coffee houses with the Green Apron Service are outperforming legacy stores in transactions, sales and customer wait times. Thanks to these results, Niccol and his team decided to accelerate its rollout and begin fully scaling it across all U.S. company-operated stores in mid-August. There were more than 10,000 such cafes at the end of last fiscal year. This is what matters most Tuesday, which is why we argue grading on a curve is necessary. The overall results, especially on operating margins, still leave a lot to be desired. It also marked the sixth straight quarter of negative comps. However, if the pilot program's success translates to other stores across the country, visibility into when Starbucks will return to positive same-store sales just got a whole lot clearer. Starbucks is headed in the right direction, with the percentage of company-operated cafes with positive full-day transaction comps and positive morning transactions improving for the third straight quarter. Based on everything we saw and heard Tuesday, this quarter marked another step in the right direction of building a better company, which is why we are reiterating our buy-equivalent 1 rating. Our $100 price target is under review. Quarterly commentary North America net sales beat Wall Street's expectation by a slight margin as the comparable sales decline of 2% was slightly better than expectations of a 2.5% hit. In the U.S., which makes up the bulk of the North America region, comparable sales declined by 2%, driven by a 4% decline in transactions and a 2% increase in ticket. That's not a noticeable improvement for the fiscal second quarter, where comps declined 2% driven by a 4% decrease in transaction, partially offset by a 3% increase in ticket. But margins remain heavily under pressure as the company invests in its "Back to Starbucks" initiative and adds workers to stores. Still, Niccol is bullish about the future. "While our financial results for the quarter don't yet reflect all the progress we've made, I see meaningful signs from across our U.S. business that we're on the right path," he said. Niccol's main focus is to fix the company's brand image, customer experience inside cafes, and throughput, which is a measure of how many customers are served in an hour — trusting that improved financial results will follow from these remedies. We agree and think a number of data points the company cited are leading indicators of better results in the quarters ahead. These include increased engagement scores with cafe employees and coffee house leaders; improved hourly partner turnover, meaning they're staying on the job longer; a record shift completion percentage; and a decline in customer complaints. A few other changes management announced Tuesday were plans to end its mobile order and pickup-only concept stores in fiscal 2026, and new menu innovations like protein cold foam. Turning to the international business, the sales results were OK but slightly underperformed expectations. Net revenue increased 9% year over year as the store count increased 5%. Comparable sales were flat as transactions increased 1% but ticket dropped 1%. The consensus forecast was a 2.2% increase in comparable sales. Despite the sales growth, operating margins contracted 200 basis points from last year to 13.6%. Results in China — long viewed as a key growth market but lately a thorn in its side — were actually pretty decent. Net revenue increased 8% year over year thanks to a 7% increase in store count. This was the third consecutive quarter of revenue growth in the region. Comparable sales increased 2%, driven by a 6% increase in transactions and a 4% decline in ticket, which isn't a shock given Starbucks cut prices in China during the quarter amid fierce local competition. Both comps and transactions improved two percentage points over the fiscal second quarter. Management cited beverage innovation and new customization options as drivers of the increased customer frequency. On the call, Niccol once again expressed that the company is trying to find a strategic partner for its business in China but will only enter a transaction if it makes sense. Niccol said he's received interest from more than 20 parties and is evaluating options. We trust Niccol will make the decision that's best for shareholders and long-term value creation. Guidance The company's guidance for the full fiscal 2025 remains suspended but management said they plan to hold an investor day in the second quarter of fiscal year 2026 — meaning between January and March of next year — to outline long-term plans. (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. 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