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Starbucks store in Italy, in Milan, Italy, Friday, Sept. 7, 2018. Starbucks is betting that premium brews and novelties like a heated marble-topped coffee bar will win bosses in a country background of its espresso rituals. (AP Photo / Luca Bruno)
Starbucks (NASDAQ: SBUX) reported a strong end to its financial year, a 3% improvement in comparable sales, and a 13% increase in Q4 earnings, with all metrics exceeded consensus expectations. Fourth quarter growth in the fourth quarter, a rise in revenue, due to a gain in all its geographic segments – Americas + 4% (2.9% expected), China / Asia-Pacific + 1% (0.1% % expected), and EMEA + 2% (1.0% expected). These positive results are encouraging, given a relatively weak first nine months, and the steps undertaken by the company seem to be working. Starbucks is continuing to focus on accelerating its growth in the U.S. and China, and focusing on the Global Coffee Alliance created with Nestle. For FY 2019, the company is expecting roughly 3% growth, 2,100 net new stores, driven by China / Asia Pacific, 5% to 7% return increase, moderate decline in operating margin, and 8% to 10% improvement in the EPS .
We have a $ 59 price quotation for Starbucks, which is in-line with the current market price. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard on Starbucks' Performance In Q4 & FY 2018 Versus Expectation Starbucks, for their impact on the EPS and price estimate for Starbucks.
Key Factors That May Impact Future Performance
1. Growth in China: Although China has been growing faster for Starbucks, the growth has been driven by the increase in store count. But this factor also causes cannibalization, which together with a sharp reduction in third-party orders resulted in a weak third quarter. As a response to this, the coffee giant has partnered with Alibaba to boost the company's delivery services in the country. The company has also converted Mainland China into a wholly-owned company-market, placing it in a strong position for long-term expansion. As a result of its efforts, Starbucks was rewarded with an improvement in the quarter. The company has also expanded to all its stores in Shanghai, Beijing, and other cities in China, with an intention to expand to 2,000 stores by the end of FY 2019. Moreover, SBUX remains on track to add 600 net year and to achieve its goal of 6,000 stores in 230 cities across Mainland China by the end of fiscal 2022.
China continues to remain a long-term growth driver for the company, as its GDP, projected to exceed $ 15 trillion by 2021 from $ 11 trillion in 2014, is expected to fuel a massive increase in its middle class. Moreover, the per capita coffee consumption in China is about one-half of one cup per person per year compared to approximately 300 cups per person per year in the US While consumption levels in China may be even to match those in the US, even it will be immensely beneficial.
2. Innovation in Food and Beverage: As consumer trends evolved, SBUX intends to stay ahead of the market with new and innovative products. Mercato fresh food menu was launched in Seattle and Chicago last year, and continues to perform well. Keeping this in mind, the company has deployed Mercato in nearly 1,800 stores across six markets. The company reports substantial accretive growth from Draft, Refreshers, Tea, and Cold Brew platforms, and noted that consumer demand for cold beverages has grown to 37% of sales over 50% of sales today. There's also a strong demand for customization, such as an alternative to its signature boldness, and the inclusion of plant-based milk and cold foam for its cold coffee and tea beverages.
3. Contraction Margin: Starbucks has over 200 SKUs from its U.S. retail stores, representing over 30% of total lobbied items. While this simplification effort is increasing the visibility of the company and reducing the complexity of its operations, it has become more important. Moreover, the consolidation of the East China business also had a negative impact on the operating margins. Another factor that presses the margins is the digital investments the company is undertaking in the Americas. Given these factors, the consolidated non-GAAP operating margin fell 170 basis points in the year. Looking ahead, the operating margin will be continued as a result of the digital initiatives, the East China acquisition, and the formation of the Global Coffee Alliance.
4. Share Buybacks: Last November, SBUX committed to $ 15 trillion to shareholders in the form of buybacks and dividends through fiscal 2020. The company has expanded that to $ 25 billion, with $ 9 billion already returned to shareholders in FY 2018.
5. Deal With Nestle: Starbucks and Nestle announced plans for a $ 7.2 billion license that would allow the latter to market, sell, and distribute the coffee giant's brands in Consumer Packaged Goods and Foodservice. This global coffee alliance, which brings together the world's leading coffee brand and retailer, and the world's largest food and beverage company, gives Nestle a stronger footing in its fight against JAB Holdings, the world's second largest player in the coffee space. For Starbucks, on the other hand, this deal has not reached the CPG presence. Starbucks will also be supplying the coffee to the Nespresso and Dulce Gusto machine platforms, opening its access to the addressable, single-serve coffee market. While the deal will grow and grow in the future, it should become more accretive to the EPS in 2020, earlier than FY 2021 stated previously.
6. Focus On Drive-Thrus: SBUX offers a wide range of restaurants in Middle America and the South, with over 80% of stores built in the year being drive-thrus. The company states that it will increase growth in the growth of these markets, and that it will be a key focus in FY 2019. In the US, the company is 15.3 million active Starbucks Rewards members, up 15% yoy. Additional, drive-thru, out-the-window, and more than 10 percentage points in just two years.
7. Improving Customer Connection: Starbucks is working on improving its customer's image, and in this regard, it's a very important task in the world. hours daily for business partners to focus on customer connections.
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Starbucks store in Italy, in Milan, Italy, Friday, Sept. 7, 2018. Starbucks is betting that premium brews and novelties like a heated marble-topped coffee bar will win bosses in a country background of its espresso rituals. (AP Photo / Luca Bruno)
Starbucks (NASDAQ: SBUX) reported a strong end to its financial year, a 3% improvement in comparable sales, and a 13% increase in Q4 earnings, with all metrics exceeded consensus expectations. Fourth quarter growth in the fourth quarter, a rise in revenue, due to a gain in all its geographic segments – Americas + 4% (2.9% expected), China / Asia-Pacific + 1% (0.1% % expected), and EMEA + 2% (1.0% expected). These positive results are encouraging, given a relatively weak first nine months, and the steps undertaken by the company seem to be working. Starbucks is continuing to focus on accelerating its growth in the U.S. and China, and focusing on the Global Coffee Alliance created with Nestle. For FY 2019, the company is expecting roughly 3% growth, 2,100 net new stores, driven by China / Asia Pacific, 5% to 7% return increase, moderate decline in operating margin, and 8% to 10% improvement in the EPS .
We have a $ 59 price quotation for Starbucks, which is in-line with the current market price. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard on Starbucks' Performance In Q4 & FY 2018 Versus Expectation Starbucks, for their impact on the EPS and price estimate for Starbucks.
Key Factors That May Impact Future Performance
1. Growth in China: Although China has been growing faster for Starbucks, the growth has been driven by the increase in store count. But this factor also causes cannibalization, which together with a sharp reduction in third-party orders resulted in a weak third quarter. As a response to this, the coffee giant has partnered with Alibaba to boost the company's delivery services in the country. The company has also converted Mainland China into a wholly-owned company-market, placing it in a strong position for long-term expansion. As a result of its efforts, Starbucks was rewarded with an improvement in the quarter. The company has also expanded to all its stores in Shanghai, Beijing, and other cities in China, with an intention to expand to 2,000 stores by the end of FY 2019. Moreover, SBUX remains on track to add 600 net year and to achieve its goal of 6,000 stores in 230 cities across Mainland China by the end of fiscal 2022.
China continues to remain a long-term growth driver for the company, as its GDP, projected to exceed $ 15 trillion by 2021 from $ 11 trillion in 2014, is expected to fuel a massive increase in its middle class. Moreover, the per capita coffee consumption in China is about one-half of one cup per person per year compared to approximately 300 cups per person per year in the US While consumption levels in China may be even to match those in the US, even it will be immensely beneficial.
2. Innovation in Food and Beverage: As consumer trends evolved, SBUX intends to stay ahead of the market with new and innovative products. Mercato fresh food menu was launched in Seattle and Chicago last year, and continues to perform well. Keeping this in mind, the company has deployed Mercato in nearly 1,800 stores across six markets. The company reports substantial accretive growth from Draft, Refreshers, Tea, and Cold Brew platforms, and noted that consumer demand for cold beverages has grown to 37% of sales over 50% of sales today. There's also a strong demand for customization, such as an alternative to its signature boldness, and the inclusion of plant-based milk and cold foam for its cold coffee and tea beverages.
3. Contraction Margin: Starbucks has over 200 SKUs from its U.S. retail stores, representing over 30% of total lobbied items. While this simplification effort is increasing the visibility of the company and reducing the complexity of its operations, it has become more important. Moreover, the consolidation of the East China business also had a negative impact on the operating margins. Another factor that presses the margins is the digital investments the company is undertaking in the Americas. Given these factors, the consolidated non-GAAP operating margin fell 170 basis points in the year. Looking ahead, the operating margin will be continued as a result of the digital initiatives, the East China acquisition, and the formation of the Global Coffee Alliance.
4. Share Buybacks: Last November, SBUX committed to $ 15 trillion to shareholders in the form of buybacks and dividends through fiscal 2020. The company has expanded that to $ 25 billion, with $ 9 billion already returned to shareholders in FY 2018.
5. Deal With Nestle: Starbucks and Nestle announced plans for a $ 7.2 billion license that would allow the latter to market, sell, and distribute the coffee giant's brands in Consumer Packaged Goods and Foodservice. This global coffee alliance, which brings together the world's leading coffee brand and retailer, and the world's largest food and beverage company, gives Nestle a stronger footing in its fight against JAB Holdings, the world's second largest player in the coffee space. For Starbucks, on the other hand, this deal has not reached the CPG presence. Starbucks will also be supplying the coffee to the Nespresso and Dulce Gusto machine platforms, opening its access to the addressable, single-serve coffee market. While the deal will grow and grow in the future, it should become more accretive to the EPS in 2020, earlier than FY 2021 stated previously.
6. Focus On Drive-Thrus: SBUX offers a wide range of restaurants in Middle America and the South, with over 80% of stores built in the year being drive-thrus. The company states that it will increase growth in the growth of these markets, and that it will be a key focus in FY 2019. In the US, the company is 15.3 million active Starbucks Rewards members, up 15% yoy. Additional, drive-thru, out-the-window, and more than 10 percentage points in just two years.
7. Improving Customer Connection: Starbucks is working on improving its customer's image, and in this regard, it's a very important task in the world. hours daily for business partners to focus on customer connections.
What's behind Trefis? See How It's Powering New Collaboration and What-Ifs
for CFOs and Finance Teams | Product, R & D, and Marketing Teams
More Trefis Research
Like our charts? Explore interactive interactive dashboards and create your own.
