Starbucks Shares Are Jumping and Could Continue Rising

Ticker Symbol: SBUX

Starbucks Corp., the world’s largest coffeehouse, provided forward guidance on its revenue and profit trajectory, which broadly beat Wall Street’s expectations. The company, which announced a leadership change during the quarter, believes that it can increase prices and revamp stores to generate sales growth of between 10% to 12% in the foreseeable future. Shares were trading up 6% in the morning session and are slightly underperforming their benchmark on a year-to-date basis, down 20.5% versus the 17% decline in the S&P 500.

Management expects same-store sales, the critical key performance metric for restaurants, would be up between 7% to 9% going forward, well ahead of the average analyst expectation and the company’s own prior commentary. Adjusted net profit is also expected to rise, with the company predicting that the following three fiscal years would see earnings per share rising between 15% to 20%. Senior leadership also expects that a dividend yield of more than 2% can be maintained due to increasing operating margins.

Chief Financial Officer Rachel Ruggeri emphasized that Starbucks would focus on digital transformation to boost its capabilities in the fields of online and mobile ordering. The acceleration of ordering ahead can boost sales substantially for Starbucks which generally faces a bottleneck in how quickly baristas can get drinks out to customers in the company’s stores. A new app for ordering and tracking orders will be the cornerstone of the digital push. The coffee giant also outlined its plans to return $20 billion to shareholders over the following three fiscal years.

Founder and interim Chief Executive Officer Howard Schultz had suspended the company’s share buyback program as one of his first steps when he retook the reigns of the business earlier this year. The outgoing head had also initiated Starbucks’s “reinvention plan” to boost sales and profitability as the pandemic slowly comes to an end. Starbucks was one of the hardest hit retailers by worldwide shutdowns and quarantines during the pandemic.

The company also struggled to recover as quickly as other fast-casual restaurant chains because of its reliance on business workers for the busy breakfast period. With telecommuting declining, however, the company believes it can reestablish the fast growth that was the hallmark of its pre-COVID performance. Additionally, the company plans on adding 2,000 new locations in the U.S. alone over the next 2 calendar years and getting to a total of 45,000 locations globally.

The company announced an ambitious new plan to invest $450 million to revamp its North American stores under new CEO Laxman Narasimhan. New stores would include more pickup, delivery-only, and drive-thru-only stores to reorient towards the modern needs of the firm’s customers. Management also announced that its recent fall-2022 launch was the highest sales week in the company’s 51-year history.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.