Betting on the Jockey: Why Jim Cramer's Faith in Starbucks' Turnaround Still Holds Water
6min read Jim Cramer's mantra—“bet on the jockey, not the horse”—has long been a cornerstone of his investing philosophy. Nowhere is this ethos more tested than in Starbucks (SBUX), where CEO Brian Niccol's “Back to Starbucks” strategy faces scrutiny after mixed Q2 results. While skeptics point to flat global comparable sales and margin erosion, Cramer's unwavering support for Niccol's leadership remains rooted in a critical truth: turnarounds take time, and this jockey has done this before.
The Case for Cramer's Confidence
Cramer's admiration for Niccol isn't arbitrary. After rescuing Chipotle (CMG) from a years-long slump, Niccol's track record of operational discipline and customer re-engagement offers a blueprint for Starbucks' revival. His early wins—simplifying the menu, reintroducing coffee condiment bars, and piloting throughput improvements—have already sparked cautious optimism in key markets. In Q2, eight of Starbucks' top 10 international markets reported flat or positive comparable sales, a sign that localized adjustments are gaining traction.
The real test lies in execution, not just intent. Starbucks' Q2 results, while far from perfect, hint at progress beneath the surface. Though global comparable sales dipped 1%, North America's 1% decline was cushioned by a 3% rise in average ticket prices—a nod to menu price optimization. Meanwhile, international markets like Japan and China saw transaction growth, with China's same-store sales stabilizing after prolonged declines.
Navigating the Storm: Costs and Strategy
The elephant in the room is margin compression. Q2's 35% drop in North American operating income and 7% slide in international profits underscore the challenges of rising labor costs and restructuring expenses. Yet, these are not irreversible headwinds. Starbucks' decision to cut 1,100 corporate roles and invest in throughput improvements—like the green apron initiative, which streamlines barista workflows—suggests a laser focus on cost discipline.
The dividend, maintained at $0.61 per share, further signals management's confidence. With 60 consecutive quarters of dividend hikes, Starbucks remains a pillar of consistency in an erratic market.
Why Now is the Time to Act
Critics will point to Q2's 50% EPS drop as a reason to retreat. But this is precisely the moment to “buy the dip.” Consider Starbucks' long-term growth levers:
- Global Expansion: 40,789 stores worldwide, with China and the U.S. accounting for 61% of the portfolio, leave room for incremental gains.
- Digital Innovation: Digital menu boards and expanded free refill programs are still in early adoption phases, promising customer stickiness.
- Margin Turnaround: While Q2 margins contracted, Starbucks' cost-cutting and operational tweaks should begin reversing this trend by late 2025.
Risks and Realities
No investment is without risk. Starbucks faces labor cost pressures, supply chain volatility, and stiff competition from rivals like McDonald's (MCD) and Dunkin' (DNKN). Yet, Cramer's stance hinges on a simple premise: Niccol's strategy addresses the root causes of Starbucks' decline. The CEO isn't chasing fads; he's rebuilding the brand's core strengths—quality, convenience, and community.
The Bottom Line: Trust the Process
Starbucks' Q2 results are a snapshot, not a verdict. The “Back to Starbucks” strategy is a marathon, not a sprint, and Niccol's leadership—proven at Chipotle—is the best bet to win it. For investors, the question isn't whether Starbucks can recover, but when. With a stabilized China market, incremental U.S. improvements, and a streamlined cost structure, the path to profitability is clear.
The stock's current valuation—trading at 23x forward earnings, below its five-year average—offers a compelling entry point. Cramer's advice to “bet on the jockey” isn't just a slogan; it's a call to back leaders who've turned around brands before. For Starbucks, this is the play.
Action Item: Consider a position in SBUX with a 12–18 month horizon, using dips below $80 as buying opportunities. The turnaround is underway—don't miss the rebound.
Data as of May 23, 2025.
