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Starbucks on the Verge of Claiming Restaurant Industry Kingship

- By Sangara Narayanan

Starbucks Corp. (SBUX), the world's largest premium coffeehouse chain, has been trading in a tight range of $50.84 to $61.50 for the last year. After nearly tripling its stock price between 2012 and 2016, Starbucks started moving sideways. The main reason for the lateral movement was the slowdown in comparable store sales in the United States.


Starbucks has more than 25,000 stores worldwide, with 15,858 stores in the Americas. During the first quarter of the current fiscal, the Americas region accounted for nearly 70% of the company's overall sales. Comparable sales in United States have slowed down quite a bit, with the company reporting 3% growth in the Americas for first-quarter 2017, after posting 6% growth for fiscal 2016.

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With a bulk of its revenues coming from the region, the comparable stores sales slowdown has largely affected market expectations. The stock has lost nearly 3.5% of its value in the last 12 months.

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But Starbucks has aggressive plans to expand its footprint around the world. In 2017, the company is planning to add a whopping 2,100 stores worldwide, a near-repeat of its store additions in 2016. The company intends to open 12,000 new stores globally by fiscal 2021, out of which 3,400 will be in the United States.

As a premium coffeehouse chain, Starbuck's offering is unique, indicating it does have the ability to increase store penetration worldwide. The sheer number of store additions will keep revenues growing in a steady manner and slowly balance the company's U.S. revenues with international income. But that process will take time.

As long as U.S. comps remains weak, the stock will remain weak, which also offers the best possible opportunity to buy the stock. The company is well on its way to becoming number one in the restaurant industry in terms of revenue, as the current number one - McDonald's (MCD) - steers toward becoming a heavily franchised model.

Disclosure: I have no positions in the stock mentioned above and no intention of initiating a position in the next 72 hours.

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This article first appeared on GuruFocus.