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Starbucks Announces Partnership to License Thai Operations

Zacks Equity Research

Starbucks Corporation SBUX has reached an agreement with Coffee Concepts Thailand — a joint venture between Maxim’s Caterers Ltd. and Thai partner F&N Retail Connection Co. — to license its Thai operations. However, the value of the deal has been kept under wraps.

The deal, which is likely to be sealed by the end of May, indicates that Starbucks is solely focused on its major markets like the United States and China. In the last two years, management has successfully turned around its EMEA business by improving customer experience via innovative new store designs, up-leveling product offerings and margin expansion through process and supply chain efficiencies. In fact, the China Asia Pacific or CAP has now become the fastest growing segment. Notably, China delivered 3% comps growth in the second quarter. With increasing investment in the Asian markets, the Starbucks brand is gaining popularity with consumers across Asia.

Starbucks' business in China is rapidly growing due to innovative store designs, local product innovations and the success of the MSR program. It has plans to launch certain features in China loyalty program this year and full digital capabilities over time. Also, the company intends 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. This speedy expansion in China is likely to triple its revenues and double its operating profit by the end of fiscal 2022 from fiscal 2017. Beyond China, the company is facilitating growth in countries like Japan, Korea, Thailand and Indonesia.

Management believes that China and the Asia-Pacific region will fetch more meaningful business over the next five years supported by rapid unit growth, growing brand awareness, and increased usage of the digital/mobile/loyalty platforms. To drive growth in China, the company has announced a historic partnership with and Alibaba for providing seamless Starbucks Experience. In Beijing and Shanghai, Starbucks has started delivery services via Alibaba's Ele.me platform. Shares of Starbucks have gained 19.8% year to date, outperforming the industry’s 16.3% rally.



Zacks Rank & Key Picks

Starbucks currently has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include Chipotle Mexican Grill, Inc. CMG, Denny's Corporation DENN and Yum China Holdings, Inc. YUMC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chipotle Mexican Grill earnings for the current year are likely to witness 43.5% growth.

Shares of Denny's have gained 17% in the past six months.

Yum China Holdings reported better-than-expected earnings in the trailing four quarter, the average being 26.9%.

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