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Starbucks (SBUX) Stock Up 25% in a Year: More Room to Run?

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Starbucks Corporation’s (SBUX - Free Report) shares have gained 25.4% in the past year compared with the industry’s increase of 13.6%. Robust North America comps, expansion efforts and digital efforts are aiding the company’s performance. The company has an impressive long-term earnings growth rate of 17.2%.

However, dismal performance in China and margin contraction remain concerns for the company. Let’s delve deeper.

Growth Drivers

The company’s North America comps impressed investors for the eighth straight quarter and rose 14% in the fiscal first quarter. The segment benefited from 10% growth in company-operated comparable store sales, new store growth and higher contribution from licensed store sales. Average ticket and transaction increased 9% and 1%, respectively.

Despite the unfavorable economic conditions, the company is focusing on expansion efforts. In the first-quarter fiscal 2023, Starbucks opened 459 net new stores worldwide, bringing the total store count to 36,170.

During fiscal 2023, the company expects store count in the United States and China to grow approximately 3% and 13%, respectively, on a year-over-year basis. The company expects global store growth to be nearly 7%. Capital expenditures in fiscal 2023 are estimated to be approximately $2.5 billion.

This Zacks Rank #3 (Hold) company is focusing on digitalization to drive growth. The company’s partnership with Alibaba for providing seamless Starbucks Experience continues to drive growth in China. Starbucks has introduced its mobile order and pay feature — Starbucks Now — to multiple platforms in the Alibaba Digital Economy, which includes Taobao, Amap, Koubei and Alipay.

The company made progress with respect to personalized digital relationship to expand reach with members. This includes program enhancements like Stars for Everyone. Starbucks initiated payment partnerships with PayPal and Bakkt, thereby allowing customers to reload their Starbucks card through a range of cryptocurrencies (including Bitcoin and Ethereum) coupled with the option of converting digital currencies to physical currency.

Despite dismal performance in China the company reiterated its guidance for fiscal 2023. Consolidated revenues are anticipated to grow in the range of 10-12% on a year-over-year basis. The company anticipates non-GAAP EPS growth to be at the low end of 15-20% range.


The COVID-19 pandemic has negatively impacted the company’s performance in China. In the fiscal first quarter, comps in China declined 29% year over year (compared with a 16% fall reported in the previous quarter). The downtick was caused by a 28% decline in transactions and a 1% decrease in average tickets.

China continues to battle COVID-19 resurgences and navigate through prolonged lockdowns. During second-quarter fiscal 2023, the company’s performance in China is also expected to be affected by COVID-19.

The company’s margin in first-quarter fiscal 2023 was negatively impacted by inflationary pressures along with increased investments in labor growth (including enhanced store partner wages and new partner training). Reduced traffic in China (due to COVID-19 restrictions) also added to the woes. On a non-GAAP basis, the operating margin in fiscal first quarter was 14.4%, down from 14.6% reported in the prior-year quarter.

Zacks Rank & Key Picks

Some better-ranked stocks in the Zacks Retail – Restaurants industry are Chuy's Holdings, Inc. (CHUY - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Brinker International, Inc. (EAT - Free Report) .

Chuy’s Holdings currently sports a Zacks Rank #1 (Strong Buy). CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 27.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggest growth of 10.8% and 16.1%, respectively, from the corresponding year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 11.6%. Shares of the company have increased 7.5% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggest growth of 8.1% and 4.2%, respectively, from the year-ago period’s levels.

Brinker carries a Zacks Rank #2. EAT has a long-term earnings growth rate of 7.1%. The stock has gained 2.6% in the past year. 

The Zacks Consensus Estimate for Brinker’s 2024 sales and EPS suggest growth of 3.9% and 36.5%, respectively, from the year-ago period’s reported levels.

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