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Starbucks (SBUX) to Open Third Reserve Roastery in Milan

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Starbucks Corporation (SBUX - Free Report) is set to open Reserve Roastery in Milan, Italy.  The 25,000-square-feet store in a historic post office building in downtown Milan will be the company’s third Reserve Roastery. The first was inaugurated in Seattle in 2014 while the second was in Shanghai, in 2017.

The Starbuck Reserve Roastery promotes the concept of having freshly roasted beans always ready at a high-end scale. Starbucks’ strategy to boost the overall brand through its premium Roastery/Reserve brands is a huge opportunity. The company previously had plans to invest in the premium Reserve brand that included the opening of 20-30 Roastery locations globally.

Expansion to Drive Growth

In the past two years, management has successfully turned around its EMEA business by improving customer experience through innovative new store designs, up-leveling product offerings along with growing margins through process and supply chain efficiencies. Moreover, the Starbucks brand is gaining popularity with consumers across Asia as the company is investing heavily in the Asian markets. The relatively low per-capita consumption as well as a burgeoning middle class with rising income levels increases the demand for convenience food and beverages and promises significant growth potential.

The Zacks Rank #3 (Hold) company believes that China and the Asia-Pacific region will drive much more meaningful business growth over the next five years supported by rapid unit growth, growing brand awareness, and rising use of the digital/mobile/loyalty platforms. Starbucks currently (as of Jul 1, 2018) operates 8,252 stores across CAP. The company remains on track to have roughly 11,000 locations in CAP (600 in China alone) in fiscal 2018.

Stock Performance

In the past three months, the stock has declined 6.4%, against the industry’s gain of 0.2%. The decline can be primarily attributed to dismal China-Asia-Pacific (CAP) comps. In third-quarter fiscal 2018, comps were down 1% versus growth of 3% registered in second-quarter 2018. Decline in comps can be primarily attributed to a decrease of 2% in comps from China. In the preceding quarter, China reported impressive comps growth of 4%. Starbucks now anticipates global comps growth to be marginally below its earlier guided range of 3-5%.

 

Key Picks

Better-ranked stocks worth considering in the same space include BJ's Restaurants, Inc. BJRI, Darden Restaurants, Inc. DRI and Dine Brands Global, Inc. DIN. BJ's Restaurants sport a Zacks Rank #1 (Strong Buy), while Darden Restaurants and Dine Brands Global carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BJ's Restaurants earnings have surpassed the Zacks Consensus Estimate by an average of 6.4% in the trailing three out of four quarters.

Darden Restaurants delivered better-than-expected earnings in the preceding four quarters, with an average beat of 3.1%.

Dine Brands Global reported better-than-expected earnings in the trailing four quarters, with an average beat of 8.1%.

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