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Starbucks (SBUX) Bets on Store Growth Amid Slow China Recovery
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Starbucks Corporation (SBUX - Free Report) continues to benefit from opening stores in new and existing markets, remodeling existing stores and deploying technology. The company is gaining from robust comparable store sales growth. However, it cautioned of a slower recovery in China. In the past six months, the company’s shares have gained 12.8%, compared with the industry’s rally of 13.2%.
Growth Drivers
Starbucks is one of the most recognized coffee brands in the world. Management has been focused on increasing global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building.
In fiscal 2019, Starbucks added 1,900 net new stores. In 2018 and 2017, the company had added 2,300 and 2,250 net new locations. Despite the pandemic, it opened 130 and 260 net new stores in third and fourth-quarter fiscal 2020, respectively. The company inaugurated 1,400 new stores in fiscal 2020. In the first nine months of fiscal 2021, Starbucks opened 635 net new stores worldwide, bringing the total store count to 33,295. The company expects to open nearly 2,150 (850 stores in Americas and 1,300 internationally) new stores and 1,100 (50 stores in Americas and 1,050 in internationally) net new stores worldwide in fiscal 2021.
After posting comps decline in second, third and fourth-quarter fiscal 2020 due to the coronavirus pandemic, it returned to growth in first-quarter fiscal 2021 and delivered an improvement of 5% (including 3% VAT benefit). In second and third-quarter fiscal 2021, the company witnessed year-over-year comps growth of 91% and 19%, respectively. U.S. comps rose 83% in the third quarter owing to material increase in transaction comps of 88%. It entered 15 new cities in China and those stores are doing outstanding business. In the third quarter, mobile order sales hit a record sales of 34% in China compared with 23% in third-quarter fiscal 2020. In the past year, mobile order sales have doubled in China. The company ended third-quarter fiscal 2021 stores with 5,315, up 15% year over year. The company is on track to operate 6,000 stores by the end of fiscal 2022.
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 customers.
Image Source: Zacks Investment Research
Concerns
Investors’ sentiments were hurt as the company cautioned of a slower recovery in China. The company narrowed both international and China same-store sales growth for fiscal 2021. International comps for fiscal 2021 are expected in the band of 15-17%, down from the earlier estimate of 25-30%. The company anticipates China comparable store sales growth to be 18-20%, down from the prior estimate of 27% to 32%. In fourth-quarter fiscal 2021, International comparable store sales growth is expected in the range of mid-to-high-single digits, while China comparable store sales are anticipated to be flat.
The Delta variant, which was first found in India, has been rapidly spreading to other parts of the world, increasing the risk of infections. The variant has been found in 135 countries including the United States. The World Health Organization warned that Delta will become the globally dominant variant of the coronavirus in the coming months. Consequently, this might hurt the restaurant industry.
Image: Bigstock
Starbucks (SBUX) Bets on Store Growth Amid Slow China Recovery
Starbucks Corporation (SBUX - Free Report) continues to benefit from opening stores in new and existing markets, remodeling existing stores and deploying technology. The company is gaining from robust comparable store sales growth. However, it cautioned of a slower recovery in China. In the past six months, the company’s shares have gained 12.8%, compared with the industry’s rally of 13.2%.
Growth Drivers
Starbucks is one of the most recognized coffee brands in the world. Management has been focused on increasing global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building.
In fiscal 2019, Starbucks added 1,900 net new stores. In 2018 and 2017, the company had added 2,300 and 2,250 net new locations. Despite the pandemic, it opened 130 and 260 net new stores in third and fourth-quarter fiscal 2020, respectively. The company inaugurated 1,400 new stores in fiscal 2020. In the first nine months of fiscal 2021, Starbucks opened 635 net new stores worldwide, bringing the total store count to 33,295. The company expects to open nearly 2,150 (850 stores in Americas and 1,300 internationally) new stores and 1,100 (50 stores in Americas and 1,050 in internationally) net new stores worldwide in fiscal 2021.
After posting comps decline in second, third and fourth-quarter fiscal 2020 due to the coronavirus pandemic, it returned to growth in first-quarter fiscal 2021 and delivered an improvement of 5% (including 3% VAT benefit). In second and third-quarter fiscal 2021, the company witnessed year-over-year comps growth of 91% and 19%, respectively. U.S. comps rose 83% in the third quarter owing to material increase in transaction comps of 88%. It entered 15 new cities in China and those stores are doing outstanding business. In the third quarter, mobile order sales hit a record sales of 34% in China compared with 23% in third-quarter fiscal 2020. In the past year, mobile order sales have doubled in China. The company ended third-quarter fiscal 2021 stores with 5,315, up 15% year over year. The company is on track to operate 6,000 stores by the end of fiscal 2022.
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 customers.
Image Source: Zacks Investment Research
Concerns
Investors’ sentiments were hurt as the company cautioned of a slower recovery in China. The company narrowed both international and China same-store sales growth for fiscal 2021. International comps for fiscal 2021 are expected in the band of 15-17%, down from the earlier estimate of 25-30%. The company anticipates China comparable store sales growth to be 18-20%, down from the prior estimate of 27% to 32%. In fourth-quarter fiscal 2021, International comparable store sales growth is expected in the range of mid-to-high-single digits, while China comparable store sales are anticipated to be flat.
The Delta variant, which was first found in India, has been rapidly spreading to other parts of the world, increasing the risk of infections. The variant has been found in 135 countries including the United States. The World Health Organization warned that Delta will become the globally dominant variant of the coronavirus in the coming months. Consequently, this might hurt the restaurant industry.
Zacks Rank & Key Picks
Starbucks has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , The Wendy's Company (WEN - Free Report) and Yum! Brands, Inc. (YUM - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Papa John's earnings for fiscal 2021 are expected to surge 122.9%.
Wendy's and Yum! Brands’ earnings for 2021 are expected to rise 42.1% and 22.4%, respectively.