In an intensely competitive restaurant industry, Starbucks Corporation SBUX has performed exceedingly well and emerged as an attractive investment option. Shares of the company have surged 32.8% in the past six months, outperforming the industry’s 15.7% growth.
We believe there is still momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from upward estimate revisions of 7 cents to $2.71 per share over the past seven days. Further, the company has a long-term growth rate of 12.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks such as Chipotle Mexican Grill, Inc. CMG, Dave & Buster's Entertainment, Inc. PLAY and Domino's Pizza, Inc. DPZ, which belong to the same industry, too gained 20.4%, 6.3% and 2.9%, respectively, in the past six months. Let’s delve deeper and find out the reason that kept Starbucks ahead of its peers.
Key Catalysts
Starbucks reported impressive first-quarter fiscal 2019 results, wherein both top and bottom line surpassed the respective Zacks Consensus Estimate for the third straight quarter. Results benefited from robust performance by the Americas and China-Asia-Pacific segments as well as store openings. Ownership change in the East China business and superb performance during the holiday season too aided the company’s quarterly performance.
Meanwhile, comparable sales from China increased for the second straight quarter. The company expects to open 600 net new stores in Americas in 2019. Following better-than-expected first-quarter results, the company raised its earnings guidance for the fiscal year. Non-GAAP EPS is expected in the band of $2.68-$2.73, up from $2.61-$2.66 projected earlier.
Further, Starbucks' business in China is rapidly growing owing to innovative store designs, local product innovations and the success of MSR program. It has plans to launch certain features in China loyalty program this year and full digital capabilities over time. The company has plans 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.
In a bid to boost growth in China, the company has announced a historic partnership with and Alibaba for providing seamless Starbucks Experience. Starbucks began delivery services in Beijing and Shanghai via Alibaba's Ele.me platform. Starbucks Delivers program has been expanded to more than 2,000 stores in China.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. Beverage innovations have been a significant contributor to comps growth for Starbucks over the years.
In the United States, Starbucks is fast expanding its food offerings to complement its drinks. Food has become a key growth driver and contributes more than 21% to the company’s U.S. revenues. Globally, the company plans to expand its lunch menu and offer locally relevant snacks.
By fiscal 2019, the company’s much talked about evening program — food, wine and beer offerings — available at 100 stores is expected to be rolled out in 20–25% of Starbucks outlets in the United States. The evening program is expected to add $1 billion in revenues by the end of the fiscal year. We believe Starbucks’ new food and beverage offerings will act as key catalyst to comps growth in the next few years.
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