Starbucks Stock: More Room to Run?

Starbucks Stock

Starbucks Corporation (NASDAQ:SBUX) is reaping the benefits of having a solid worldwide footprint, having successful inventions, and supplying digital products. The company is also benefiting from solid comparative performance in North America. Compared to the industry’s growth as a whole, Starbucks stock price has increased by 37% during the past six months.

However, the disappointing results from China, inflationary pressures that are higher than projected, increasing prices, and a tight labor market are all causes for concern.

Key Growth Drivers

Starbucks’ primary objective is to expand its global market share through strategic store openings in both new and existing markets, renovation of existing stores, implementation of technology, strict cost management, aggressive product innovation, and brand building.

Despite the pandemic, Starbucks opened 1,400 outlets for the fiscal year of 2020. During the financial year 2021, the firm launched 1,173 net new outlets across the globe. During the second, third, and fourth quarters of the fiscal year 2022, Starbucks opened 313, 318, and 763 net new locations worldwide. This brought the total number of outlets to 35,711.

The retail giant anticipates that the number of stores it operates in the United States and China will increase by 3% and 13%, respectively, from one year to the next in 2023. The amount that will be spent on capital projects during the fiscal year 2023 is anticipated to be $2.5 billion.

Starbucks is working to strengthen its product portfolio by introducing substantial innovations in the areas of beverages, refreshments, health and wellness, tea, and its core culinary offerings. The company is focusing more on rapidly expanding product categories such as cold brew, draught nitro beverages, and plant-based modifiers such as almond, coconut, and soy milk alternatives. In addition to the many new and exciting beverage inventions, it has also been making an effort to provide its customers with goods that are higher in nutrition and better for their health.

Investors have been pleased for seven consecutive quarters by Starbucks’ comparative performance in North America. Comps in North America increased 11% during the fiscal fourth quarter, largely thanks to a 10% jump in the average ticket price.

Comparable store sales around the globe climbed by 7% compared to the previous year. The positive outcome was mainly the result of an increase of 8% in the average ticket price. The company forecasts its global comparable sales will hit the high end of the target range of 7-9% in the upcoming fiscal year 2023.

Factors That Could Affect Starbucks Stock Price

Starbucks stock’s performance in China has suffered as a direct result of the COVID-19 outbreak. Comparable sales in China experienced a 16% year-over-year decrease during the fiscal fourth quarter. The drop was due to a 17% drop in transactions, which was somewhat offset by a 1% rise in the average ticket price, which caused the downtick.

China is currently engaged in an ongoing fight against COVID-19 resurgences and navigating through protracted lockdowns. It is anticipated that the pandemic will negatively impact the company’s operations in China during the first quarter of fiscal 2023.

Additionally, inflationary pressures impacted Starbucks’ profit margin during the fourth quarter of fiscal 2022. Concerns were also raised regarding the need for more investments in workforce growth, such as higher store partner wages and training for new store partners. The situation was made worse by the limits imposed by COVID-19, which reduced the amount of traffic in China.

The non-GAAP operating margin for the fiscal fourth quarter was 15.1%, a decrease from the 19.5% operating margin that was recorded for the same period in the preceding year. The disadvantages, however, were somewhat compensated for by clever pricing in North America and sales leverage across markets (outside China).

Featured Image: Pexels @ Anny Pappa

Please See Disclaimer

About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.