HomeMost PopularInvestingStarbucks (SBUX) Sees Growth Potential Amid Expansion Efforts and Strong Sales

Starbucks (SBUX) Sees Growth Potential Amid Expansion Efforts and Strong Sales

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Starbucks Corporation (SBUX) is making strategic moves to capitalize on its expansion initiatives and robust North America comparable sales. While challenges arise from disappointing Channel Development sales and rising inflationary costs, the coffee giant remains poised for growth. Over the past year, SBUX stock has shown a steady rise of 6.1% compared to the industry’s 8% growth.

The company’s fiscal year 2023 is expected to see remarkable growth, with earnings projected to jump by 16.9% and sales by 11.1% year over year. SBUX also boasts an impressive long-term earnings growth rate of 16.5%.

Driving Factors for growth

Starbucks, a globally recognized coffee brand, has been expanding its market presence through store openings, renovations, technological advancements, cost management, and innovation. In the past six fiscal years, the company has added a significant number of new stores, totaling 9,243. In fiscal 2023, it expects a 3% growth in store count in the United States and a 13% growth in China. Global store growth is projected to be around 7%. Furthermore, the company plans to invest approximately $2.5 billion in capital expenditures in fiscal 2023.

SBUX’s North America comparable sales have consistently impressed investors for ten consecutive quarters. The segment’s success can be credited to the growth in company-operated comparable store sales, net new store growth, and strong licensed store sales. The average ticket and transaction in the segment have also seen year-over-year growth. Fourth-quarter fiscal 2023 forecasts predict a 9.6% increase in company-operated store sales in North America to $6,085.1 million.

Looking ahead to fiscal 2023, Starbucks management expects global comparable sales to reach the high end of the 7-9% target range. Consolidated revenues are anticipated to rise between 10-12% year over year. The company also estimates a non-GAAP EPS growth rate of 16-17%, reflecting strong growth prospects.

Zacks Investment Research
Image Source: Zacks Investment Research

Challenges Ahead

Starbucks experienced a decline in third-quarter fiscal 2023 due to disappointing Channel Development sales. The net revenues in this segment were down 6.4% YoY, primarily due to a decline in the Global Coffee Alliance business. However, the segment’s operating margin saw a significant increase of 630 basis points YoY, driven by an increase in North American Coffee Partnership joint venture income and mix shift.

Rising inflationary pressures pose a challenge for Starbucks. The company has witnessed price hikes for its ingredients over the past few quarters, which is expected to impact its margins in the near term. In addition, total operating expenses increased by 10.8% YoY during the third quarter of fiscal 2023. Managing these increasing costs will be crucial for sustainable growth.

Investment Opportunities

While Starbucks faces challenges, there are several investment opportunities worth considering in the Retail-Wholesale sector:

  • Abercrombie & Fitch Co. (ANF) – With a Zacks Rank #1 (Strong Buy), ANF has shown remarkable performance with a trailing four-quarter earnings surprise of 724.8% on average. The stock has surged 236.6% in the past year.
  • Arcos Dorados Holdings Inc. (ARCO) – Currently sporting a Zacks Rank #1, ARCO has demonstrated a trailing four-quarter earnings surprise of 35% on average. The stock has gained 14.5% in the past year.
  • Yum! Brands, Inc. (YUM) – Carrying a Zacks Rank #2 (Buy), YUM has shown consistent performance with a trailing four-quarter earnings surprise of 2% on average. The stock has improved 9% in the past year.

These investment opportunities highlight companies with strong growth prospects in the retail and wholesale sector.

Conclusion

Starbucks is focused on expanding its market presence and boosting sales through various strategies. Despite challenges in certain segments, the company remains optimistic about its future growth prospects. Investors looking to capitalize on the potential of the financial markets should consider these opportunities within the retail and wholesale sector.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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