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Starbucks (SBUX) Stock Rises 37% in 6 Months: More Room to Run?
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Starbucks Corporation (SBUX - Free Report) is benefiting from a solid global footprint, successful innovations and digital offerings. The company is also gaining from robust North America comps. The stock has risen 37% in the past six months compared with the industry’s growth of 14.3%.
However, dismal China results, higher-than-expected inflationary pressures, increased costs and a tight labor market are concerning.
Growth Drivers
The Zacks Rank #3 (Hold) company is focusing on increasing its global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs, aggressive product innovation and brand building.
Despite the pandemic, it inaugurated 1,400 stores in fiscal 2020. In fiscal 2021, the company opened 1,173 net new stores worldwide. In the second, third and fourth quarters of fiscal 2022, Starbucks opened 313, 318 and 763 net new stores worldwide, respectively, taking the total store count to 35,711.
In 2023, the company expects store count in the United States and China to grow 3% and 13%, respectively, on a year-over-year basis. Capital expenditure in fiscal 2023 are estimated to be $2.5 billion.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. The company is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages and plant-based modifiers, including almond, coconut and soy milk alternatives. Apart from the numerous beverage innovations, it has been making an effort to offer more nutritional and healthy products to its customers.
The company’s North America comps have impressed investors for the seventh straight quarter. North America comps rose 11% in the fiscal fourth quarter, owing to an improvement of 10% in average ticket.
Global comparable store sales increased 7% year over year. The upside was primarily driven by an 8% rise in average tickets. For fiscal 2023, the company anticipates global comparable sales to reach the high end of the 7-9% target.
Image Source: Zacks Investment Research
Concerns
COVID-19 has negatively impacted the company’s performance in China. In the fiscal fourth quarter, comps in China declined 16% year over year. The downtick was caused by a 17% decline in transactions, partially offset by a 1% increase in average tickets.
China continues to battle COVID-19 resurgences and navigate through prolonged lockdowns. In first-quarter fiscal 2023, the company’s performance in China is expected to be affected by the pandemic.
Also, the company’s margin in fourth-quarter fiscal 2022 was affected by inflationary pressures. Increased investments in labor growth (including enhanced store partner wages and new partner training) were added concerns. Reduced traffic in China (due to COVID-19 restrictions) added to the woes.
On a non-GAAP basis, the operating margin in the fiscal fourth quarter was 15.1%, down from 19.5% reported in the prior-year quarter. However, the downside was partially offset by strategic pricing in North America and sales leverage across markets (outside China).
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Wingstop Inc. (WING - Free Report) , Tecnoglass Inc. (TGLS - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) .
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the year-ago period’s reported levels.
Tecnoglass currently carries a Zacks Rank #2. Shares of the company have gained 34.8% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Domino's currently carries a Zacks Rank #2. DPZ has a long-term earnings growth rate of 12.6%. Shares of DPZ have gained 31.9% in the past year.
The Zacks Consensus Estimate for Domino's s 2023 sales and EPS suggests growth of 3.8% and 17.2%, respectively, from the year-ago period’s reported levels.
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Starbucks (SBUX) Stock Rises 37% in 6 Months: More Room to Run?
Starbucks Corporation (SBUX - Free Report) is benefiting from a solid global footprint, successful innovations and digital offerings. The company is also gaining from robust North America comps. The stock has risen 37% in the past six months compared with the industry’s growth of 14.3%.
However, dismal China results, higher-than-expected inflationary pressures, increased costs and a tight labor market are concerning.
Growth Drivers
The Zacks Rank #3 (Hold) company is focusing on increasing its global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs, aggressive product innovation and brand building.
Despite the pandemic, it inaugurated 1,400 stores in fiscal 2020. In fiscal 2021, the company opened 1,173 net new stores worldwide. In the second, third and fourth quarters of fiscal 2022, Starbucks opened 313, 318 and 763 net new stores worldwide, respectively, taking the total store count to 35,711.
In 2023, the company expects store count in the United States and China to grow 3% and 13%, respectively, on a year-over-year basis. Capital expenditure in fiscal 2023 are estimated to be $2.5 billion.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. The company is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages and plant-based modifiers, including almond, coconut and soy milk alternatives. Apart from the numerous beverage innovations, it has been making an effort to offer more nutritional and healthy products to its customers.
The company’s North America comps have impressed investors for the seventh straight quarter. North America comps rose 11% in the fiscal fourth quarter, owing to an improvement of 10% in average ticket.
Global comparable store sales increased 7% year over year. The upside was primarily driven by an 8% rise in average tickets. For fiscal 2023, the company anticipates global comparable sales to reach the high end of the 7-9% target.
Image Source: Zacks Investment Research
Concerns
COVID-19 has negatively impacted the company’s performance in China. In the fiscal fourth quarter, comps in China declined 16% year over year. The downtick was caused by a 17% decline in transactions, partially offset by a 1% increase in average tickets.
China continues to battle COVID-19 resurgences and navigate through prolonged lockdowns. In first-quarter fiscal 2023, the company’s performance in China is expected to be affected by the pandemic.
Also, the company’s margin in fourth-quarter fiscal 2022 was affected by inflationary pressures. Increased investments in labor growth (including enhanced store partner wages and new partner training) were added concerns. Reduced traffic in China (due to COVID-19 restrictions) added to the woes.
On a non-GAAP basis, the operating margin in the fiscal fourth quarter was 15.1%, down from 19.5% reported in the prior-year quarter. However, the downside was partially offset by strategic pricing in North America and sales leverage across markets (outside China).
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Wingstop Inc. (WING - Free Report) , Tecnoglass Inc. (TGLS - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) .
Wingstop currently has a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have lost 14.2% in the past year. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the year-ago period’s reported levels.
Tecnoglass currently carries a Zacks Rank #2. Shares of the company have gained 34.8% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Domino's currently carries a Zacks Rank #2. DPZ has a long-term earnings growth rate of 12.6%. Shares of DPZ have gained 31.9% in the past year.
The Zacks Consensus Estimate for Domino's s 2023 sales and EPS suggests growth of 3.8% and 17.2%, respectively, from the year-ago period’s reported levels.