Reasons To Buy:

Strong Brand Position: Starbucks is one of the most recognized coffee brands in the world. From espresso to specialty roast and ground coffee to premium single-serve market, Starbucks commands authority and a leading position in all coffee segments. Further, management focuses 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, the company opened 130 and 260 net new stores in third and fourth-quarter fiscal 2020, respectively. Moreover, the company inaugurated 1,400 new stores in fiscal 2020. In fiscal 2021, Starbucks opened 1,173 net new stores worldwide, bringing the total store count to 33,833. The company expects to open nearly 2,000 net new stores worldwide in fiscal 2022.

Global Coffee Alliance With Nestle Expands Starbucks’ Channel Development Footprint: Starbucks and the Swiss-based food giant Nestle SA have teamed up to revitalize their coffee domains. Starbucks and Nestle announced a global marketing deal that gives the latter "perpetual rights" to market Starbucks’ products globally outside its coffee shops. This alliance will expand the global reach of Starbucks brands in the consumer packaged goods (“CPG’) and foodservice categories to nearly 190 countries around the world. Earlier, the company launched three new coffee platforms in more than 30 new markets — Starbucks by Nespresso, Starbucks by Dolce Gusto as well as Starbucks roast and ground coffee. The Global Coffee Alliance with Nestle has been a powerful partnership and the company finished the year 2020 as the number one coffee brand across the entire coffee category. During fourth-quarter fiscal 2021, the company registered growth in the Global Coffee Alliance and the International ready-to-drink businesses with double-digit sales growth in key markets like Japan, the U.K., Korea and Mexico.

Emphasis on China: China Asia Pacific has now become the fastest growing segment. Improving customer experience via innovative new store designs, upgrading product offerings and margin expansion through process and supply chain efficiencies are driving CAP performance. China has witnessed comps growth of 1%, 3%, 6% and 5% in the first, second, third and fourth of fiscal 2019.  In first-quarter 2020, China delivered comps growth of 3%. 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 91% and 19% year over year comps growth, respectively. In second-quarter fiscal 2021, the company launched its flagship store on JD.com, which is China’s major e-commerce platform.

During fourth-quarter fiscal 2021, operations in Starbucks China were affected by pandemic-induced restrictions across 18 provincial level regions. With a majority of the stores closed (or operating at different levels of elevated public health protocols), the company reported constrained customer mobility with operations pertaining to mobile ordering and limited seating. Although the crisis affected the recovery momentum, the company witnessed a recovery in September, propelled by a solid pace of store developments and significant growth in digital customer relationships. In the fiscal fourth quarter, the company registered a 5% sequential increase in its digital footprint with Starbucks Rewards, reaching 17.9 million active members. Emphasis on member engagement and exclusive offerings benefitted the company. Also, frequency of purchases by Gold members remained at pre-pandemic levels.

In terms of expansion in China, the company opened 225 net new stores (in the fiscal fourth quarter) and 654 net new stores (in fiscal 2021), thereby bringing the total count to 5,360 stores in the region. The company plans to build 600 net new stores annually over the next five years in Mainland China, which will double the market's store count from the end of fiscal 2017 to 6,000 across 230 cities.

Robust Digitalization: The company announced a historic partnership with Alibaba for providing seamless Starbucks Experience to drive growth in China. Starbucks began delivery services in Beijing and Shanghai via Alibaba's Ele.me platform. Recently, the company has also strengthened its relationship with Alibaba. Starbucks lovers in China can now place orders via multiple Alibaba Group apps. 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. Starbucks customers can also use Starbucks Now feature to pre-order and pay for their favorite Starbucks beverage and food online before in-person pick-up at local stores. This will help Starbucks in expanding presence in China as Alibaba Digital Economy has user base of nearly 1 billion.  Starbucks' business in China is rapidly growing due to innovative store designs, local product innovations and the success of MSR program. In fiscal 2021, the company reported 90-day active Starbucks Rewards members of 24.8 million members, reflecting a growth of 30% year over year. To reduce complexity in its stores, Starbucks rolled out Deep Brew (artificial intelligence platform) covering daily inventory management, store staffing and training improvements.

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. Notably, the company is exploring the blockchain platform for ways to connect Starbucks Rewards program with other merchant rewards program coupled with the motive of tokenization of stars. The initiative paves a path for the exchange of value across brands, enhanced digital services as well as swapping of other loyalty points for stars. To support this initiative, the company recently launched Canadian loyalty program with Air Canada. Going forward, the company is likely to highlight this format as it is likely to serve the foundation for a new modern payment that aligns expenses with the value received by customers and merchants.

Focus on Innovation: Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, 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. Meanwhile, the company’s Reserve Roastery and Tasting Room elevates the coffee experience to the next level, with small-batch super-premium coffee produced using innovative coffee-brewing techniques. Starbucks’ collaboration with Beyond Meat to roll out a plant-based lunch menu in the China is a testament to the same. Now Starbucks customers can enjoy pastas and lasagna made utilizing Beyond Meat's plant-based beef products. It will also include meatless pork alternative known as Omnipork and popular non-dairy milk called Oatley. The new menu is available at more than 3,300 Starbucks locations in China. Both the companies have already partnered to roll out a plant-based sandwich to Canadian locations.

Positive U.S. Comps Growth: The company’s U.S. comps have impressed investors for the third straight quarter. In fourth-quarter fiscal 2021, the company’s North America segment reported comps growth of 22% year over year, owing to an 18% increase in transaction comps and a 3% rise in average ticket. U.S. comps rose 20% in the fiscal fourth quarter, owing to a material increase in transaction comps of 19%. The company now anticipates global comparable sales to reach high-single digits in fiscal 2022.

Enough Liquidity to Tide Over Coronavirus Pandemic: Maintaining liquidity has become a herculean task during the coronavirus pandemic. At the end of fourth-quarter fiscal 2021, the company reported cash and cash equivalent of $6,455.7 million up from $4.9 billion in the previous quarter. The company’s long-term debt totaled $13,616.9 million (as of Oct 3, 2021) compared with $13,619 million (as of Jun 27, 2021). Although the company’s cash balance is lower than its debt levels, it has available cash and cash flows from operations that will provide sufficient liquidity to meet operating cash requirements for some time. Times-interest-earned ratio at the end of the fiscal fourth quarter came in at 12.4x compared with 8.5x in the previous quarter. This indicates that the company is in a better position to meet debt obligations.