At the biennial Investor Conference in New York City, Starbucks Corporation SBUX outlined its long-term financial target and strategic efforts. The company’s shares declined 3.2% in after-hour trading session yesterday as company trimmed its long-term earnings growth forecast. However, in the past six months, the stock has rallied 18.6%, compared with the industry’s collective gain of 8.1%.
The company expects long-term earnings growth rate of at least 10%, lower than the prior estimate of 12%. Further, the company projects long-term comps growth of 3-4% and revenue growth of 7%-9%. To achieve this, Starbucks aims to increase its retail store portfolio by 6%-7% net new units.
Moreover, the company reiterated its fiscal 2019 guidance. For fiscal 2019, Starbucks continues to anticipate global comps growth near the lower range of 3-5%. Globally, the company still expects to add approximately 2,100 net new stores. Consolidated revenue growth is projected in the 5-7% band. Non-GAAP EPS is expected in the band of $2.61-$2.66.
Strategic Partnership in China to Drive Growth
In August, Starbucks and Alibaba announced a historic partnership to enable a seamless Starbucks Experience. Starbucks said that this partnership across significant businesses within the Alibaba ecosystem, including Ele.me, Hema, Tmall, Taobao as well as Alipay will help drive growth in China. The company is also launching its first-ever, virtual Starbucks store in China. This virtual store will provide a one-touch digital Starbucks Experience.
In an effort to expand its footprint in China, the company has been working with Ele.me, which is the country’s leading on-demand food delivery platform. The company’s delivery channel spans 2,000 stores across 30 cities in China. Starbucks has also partnered with Uber Eats for delivery in both Tokyo and Miami. The company is planning to expand its delivery channel in China to approximately quarter of its U.S. company-operated stores in early 2019.
The Seattle-based coffee giant has plans to build 600 net new stores annually over the next five years in Mainland China that will double its 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.
Focus on Key Areas to Drive Comps
Starbucks is also focusing on three key areas, which includes expansion of the company’s loyalty program, digitalization and new member acquisition. These efforts are likely to drive comps by 1-2 points. Starbucks holds a leading position in digital, card, loyalty and mobile capabilities. Retail companies are witnessing a shift in consumer shopping behavior from bricks-and-mortar stores to online shopping.
Further, the Zacks Rank #3 (Hold) company is trying to broaden the reach of the Starbucks loyalty and mobile platform to its CPG business and emerging brands. Starbucks customers can now earn reward points under the MSR loyalty program on purchase of packaged coffee at its grocery channels, which is expected to further boost sales.
Better-ranked stocks in the same space include BJ's Restaurants, Inc. BJRI, Darden Restaurants, Inc. DRI and Cracker Barrel Old Country Store, Inc. CBRL. All these stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BJ's Restaurants reported better-than-expected earnings in the trailing four quarters, with the average beat being 33.2%.
Darden Restaurants has an impressive long-term earnings growth rate of 9.3%.
Cracker Barrel Old Country Store reported better-than-expected earnings in the trailing three out of four quarters, with the average beat being 0.7%.
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