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Starbucks (SBUX) Rallies 25% in 3 Months: Can It Continue?
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Shares of Starbucks Corporation (SBUX - Free Report) have gained 25.4% in the past three months compared with the industry’s rally of 19.7%. The company is benefiting from higher North America comparable sales, expansion efforts, successful innovations and digital offerings. However, dismal performance in China and higher costs hurt the company. Let’s delve deeper.
Growth Drivers
The company’s North America comps have impressed investors for the sixth straight quarter. North America comps rose 9% in the fiscal third quarter, owing to an improvement of 8% in average ticket. Global comparable store sales rose 3% year over year. The upside was primarily driven by a 6% rise in average tickets, marginally overshadowed by a 3% decline in comparable transactions.
Despite the pandemic, the company continues to focus on store expansion efforts. In fiscal 2021, Starbucks opened 1,173 net new stores worldwide. In the second and third quarter of fiscal 2022, Starbucks opened 313 and 318 net new stores worldwide, respectively, taking the total store count to 34,948.
During the second and third-quarter fiscal 2022, operations in Starbucks China were affected by pandemic-induced restrictions. However, the company is very optimistic about long-term growth opportunities. Despite the pandemic, the company opened 107 net new stores in China, taking the store count to 5,761 across 228 cities.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshments, health and wellness, tea and core food offerings. Starbucks 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, Starbucks has also been making an effort to offer more nutritional and healthy products to its customers.
This Zacks Rank #3 (Hold) company is also benefiting from a robust loyalty program. Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 27.4 million, reflecting an increase of 13% year over year.
Image Source: Zacks Investment Research
Hurdles to Cross
The coronavirus pandemic has negatively impacted the company’s performance in China. Shanghai, a city four times the size of New York City, was closed for two months. The company’s performance in China continues to be impacted by the decline in office occupancy in the company’s largest urban markets. Due to the uncertainty in China, the company is unable to predict its performance in the country in the back half of the year. During the fiscal third quarter, comps in China declined 44% year over year. The downtick was caused by a 1% decline in average tickets and a 43% fall in transactions. China continues to battle COVID resurgences and navigate through prolonged lockdowns. At the end of third-quarter 2022, the company noted that nearly one-third of its stores in China remain temporarily closed or are offering mobile ordering channels only.
The company’s earnings in fiscal 2022 are likely to be impacted by strategic investments and cost inflation. The expiration of government subsidies in Asia and the transition of Starbucks Korea to the licensee is likely to hurt the company’s margin in fiscal 2022.
The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 14.1% and 90.4%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. ARCO has long-term earnings growth of 34.4%. Shares of the company have increased 34.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 25.7% and 120.8%, respectively, from the year-ago period’s levels.
Dollar Tree carries a Zacks Rank #2. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. The stock has gained 65.9% in the past year.
The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s levels.
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Starbucks (SBUX) Rallies 25% in 3 Months: Can It Continue?
Shares of Starbucks Corporation (SBUX - Free Report) have gained 25.4% in the past three months compared with the industry’s rally of 19.7%. The company is benefiting from higher North America comparable sales, expansion efforts, successful innovations and digital offerings. However, dismal performance in China and higher costs hurt the company. Let’s delve deeper.
Growth Drivers
The company’s North America comps have impressed investors for the sixth straight quarter. North America comps rose 9% in the fiscal third quarter, owing to an improvement of 8% in average ticket. Global comparable store sales rose 3% year over year. The upside was primarily driven by a 6% rise in average tickets, marginally overshadowed by a 3% decline in comparable transactions.
Despite the pandemic, the company continues to focus on store expansion efforts. In fiscal 2021, Starbucks opened 1,173 net new stores worldwide. In the second and third quarter of fiscal 2022, Starbucks opened 313 and 318 net new stores worldwide, respectively, taking the total store count to 34,948.
During the second and third-quarter fiscal 2022, operations in Starbucks China were affected by pandemic-induced restrictions. However, the company is very optimistic about long-term growth opportunities. Despite the pandemic, the company opened 107 net new stores in China, taking the store count to 5,761 across 228 cities.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshments, health and wellness, tea and core food offerings. Starbucks 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, Starbucks has also been making an effort to offer more nutritional and healthy products to its customers.
This Zacks Rank #3 (Hold) company is also benefiting from a robust loyalty program. Starbucks Rewards loyalty program’s 90-day active members in the United States increased to 27.4 million, reflecting an increase of 13% year over year.
Image Source: Zacks Investment Research
Hurdles to Cross
The coronavirus pandemic has negatively impacted the company’s performance in China. Shanghai, a city four times the size of New York City, was closed for two months. The company’s performance in China continues to be impacted by the decline in office occupancy in the company’s largest urban markets. Due to the uncertainty in China, the company is unable to predict its performance in the country in the back half of the year. During the fiscal third quarter, comps in China declined 44% year over year. The downtick was caused by a 1% decline in average tickets and a 43% fall in transactions. China continues to battle COVID resurgences and navigate through prolonged lockdowns. At the end of third-quarter 2022, the company noted that nearly one-third of its stores in China remain temporarily closed or are offering mobile ordering channels only.
The company’s earnings in fiscal 2022 are likely to be impacted by strategic investments and cost inflation. The expiration of government subsidies in Asia and the transition of Starbucks Korea to the licensee is likely to hurt the company’s margin in fiscal 2022.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Potbelly Corporation (PBPB - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Dollar Tree Inc. (DLTR - Free Report) .
Potbelly has a Zacks Rank #2 (Buy), at present. PBPB has a trailing four-quarter earnings surprise of 26.2%, on average. Shares of PBPB have declined 3.7% 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 Potbelly’s 2022 sales and EPS suggests growth of 14.1% and 90.4%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. ARCO has long-term earnings growth of 34.4%. Shares of the company have increased 34.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 25.7% and 120.8%, respectively, from the year-ago period’s levels.
Dollar Tree carries a Zacks Rank #2. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. The stock has gained 65.9% in the past year.
The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s levels.