Zacks Equity Research
·3 min read
Starbucks Corporation SBUX is benefiting from strong performances in licensed store businesses, expansion efforts and menu innovation. However, the ongoing inflationary pressure remains a concern.
This Zacks Rank #3 (Hold) company’s earnings and sales in fiscal 2024 are likely to witness growth of 14.7% and 7.8% from the year-ago levels, respectively. The company also has an impressive long-term earnings growth rate of 15.5%.
Growth Drivers
Starbucks is one of the most recognized coffee brands in the world. From espresso to specialty roast and ground coffee to premium single-serve market, SBUX commands authority and a leading position in all coffee segments.
Management is focusing on expansion efforts to drive growth. During the first quarter of fiscal 2024, it opened 549 net new stores. This brings the total global store count to 38,587 as of Dec 31, 2023, with 51% company-operated and 49% licensed stores.
For fiscal 2024, SBUX expects store count in the United States and China to grow approximately 4% and 13%, respectively, from the year-ago levels. Management projects global store growth to be approximately 7%. Capital expenditures in fiscal 2024 are estimated to be approximately $3 billion.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness, tea and core food offerings. It is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages and plant-based modifiers, including almond, coconut and soy milk alternatives. Apart from numerous beverage innovations, Starbucks has also been making an effort to offer more nutritional and healthy products to its customers.
Apart from menu innovation, the company indulges in other investments that reduce manual labor and increase efficiency. During first-quarter fiscal 2024, SBUX mentioned staying on track to have around 10% of its stores equipped with a Siren System by year-end. The company continued installing Clover Vertica in nearly 10% of its U.S. company-operated stores in the quarter.
SBUX also aims to have on-demand single-cup brewers installed in nearly 60% of its U.S. company-operated stores by fiscal 2024. This initiative will enhance SBUX's coffee offerings and increase partner productivity by reducing waste and creating efficiencies in store operations.
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Concerns
The ongoing inflationary pressure is likely to hurt Starbucks’ performance. Its ingredients are witnessing a jump in price since the last few quarters. Higher expenses may weigh on margins in the near term. During first-quarter fiscal 2024, its total operating expenses climbed 6.3% year over year to $7,995.8 million.
Shares of the company have declined 7% in the past three months against the industry’s growth of 3.2%.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are discussed below.
Brinker International, Inc. EAT carries a Zacks Rank #2 (Buy), at present. It has a trailing four-quarter earnings surprise of 212.7% on average. Shares of EAT have jumped 32.2% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago levels.
Texas Roadhouse, Inc. TXRH currently carries a Zacks Rank of 2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has risen 41.6% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests a rise of 14.1% and 25.8%, respectively, from the year-ago levels.
CAVA Group, Inc. CAVA currently carries a Zacks Rank of 2. It has a trailing three-quarter earnings surprise of 533.3%, on average.
The Zacks Consensus Estimate for CAVA’s 2024 sales and EPS indicates 19.8% and 14.3% growth, respectively, from the year-ago levels.
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Starbucks Corporation (SBUX) : Free Stock Analysis Report
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