4 Things Starbucks Management Wants Investors to Know
Starbucks (NASDAQ: SBUX) has entered a period of transition. Former CEO Howard Schultz has stepped down from his position as executive chairman, and fully walked away from daily management of the company he helped build.
That leaves current CEO Kevin Johnson squarely in charge. He opened the chain's third-quarter earnings call by noting that his company delivered a record $6.3 billion in revenue, an 11% increase, and a 1% increase in comparable-store sales both in the United States and globally. Then, after sharing those numbers, he apologized.
"While we fell short of the expectations we had entering the quarter, we made measurable progress against two commitments we've made to our shareholders to deliver predictable, sustainable growth at scale and to create shareholder value long into the future," he said. "To deliver on these commitments, we continue to focus our energy, capital, and resources on executing against our three strategic priorities."
Those comments illustrate the challenging job Johnson has. This is a company where the bar for success is set so high that 11% revenue growth and a 13% increase in earnings per share year-over-year require an apology.
Starbucks has plans to expand its global packaged goods reach. Image source: Starbucks.
Innovation remains important
Johnson has made it clear that he's not going to offer as many stunt limited-time-offers (like the Unicorn Frappuccino) as the company has in the past. That does not mean the chain's menu won't continue to change, however.
"Our beverage innovation platform is working," he said. "We have a full pipeline of new beverages on the horizon to delight our customers in the quarters ahead. Beverage innovation is fueling growth in our platforms of coffee, tea, and refreshers, and offsetting some of the softness we've seen in blended."
Let's get digital
Starbucks has been a digital pioneer, and its app/Starbucks Rewards platform has been a major part of its strategy. Johnson wants to build on the company's existing success in that area, while also increasing the reach of its digital platform.
"Our digital reach is expanding by every measure, including a double-digit increase in active rewards membership year-over-year, and the addition of 6 million digitally registered customers who are not yet rewards members, but who have established a digital connection with Starbucks," he said.
Nestle makes the very best
Investors could be forgiven if they have forgotten that Starbucks agreed to a $7.15 billion global distribution deal with Nestlé (NASDAQOTH: NSRGY) back in May. That agreement will allow Nestle to distribute the various Starbucks brands (Starbucks, Seattle's Best, Teavana, and more) in bean, pods, and other dry formats (ready-to-drink beverages are not included) in grocery stores, supermarkets, and other retailers globally.
"Our second strategic priority is to expand and leverage the Starbucks brand through the Global Coffee Alliance with Nestlé," Johnson said. "We remain on track to close the Nestlé deal in our Fiscal Q4. Nestlé is the ideal global partner to accelerate Starbucks' growth profile by combining our global brand and coffee leadership with the world's leading distribution network, covering 189 countries."
The CEO also noted that the deal will bring Starbucks coffee to the Nespresso single-serve platform. That's not overly important in the U.S. where Keurig K-cup machines dominate, but it's an important move in Europe where Nestle controls that market.
Grow China grow
Starbucks has been adding roughly a store a day in China. The company continues to focus on fast growth in that market according to its CEO.
"We are in a market growth phase that is all about new store expansion," he said. "The fact that we're in roughly 130 to 140 cities and expanding into the next 100 cities over the next 3 years is critical. The reason we grew transactions in the mid-teens in China is because of new store growth. It is through that expansion that we're enabling the brand to not only deepen its engagement with customers in the cities that we're in, but also expand into new cities."
Johnson is confident
It was hard to miss the CEO's optimism during his the call. He continually reinforced that Starbucks has a multi-pronged plan that it will continue to follow. Johnson did not dismiss the quarter's results -- he acknowledged that there were weaknesses in some areas multiple times -- but he also made it clear that the company's long-term future outweighs any short-term results.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.
