Starbucks’ Continues To Grow In September Quarter, Though Downtrend In Comps Persists
Starbucks Corporation (NASDAQ:SBUX) reported its September quarter results on October 3rd, beating the consensus estimates for revenue and earnings. The coffee giant saw robust growth of 16% year-over-year in its topline, owing to the growth seen in comparable store sales in China and America.
However, a conspicuous downtrend is visible in the consolidated comps on a sequential basis. This downtrend is quite worrisome as is evident from the fall in the company’s stock price. Compounding the situation is the lukewarm guidance (ranging in mid-single digits) provided by the company for comps for FY 2017, due to the weakness in many countries in Asia and Europe and the uncertainty around U.S. elections.
Starbucks is a solid company fundamentally and hasn’t disappointed in terms of growth in revenue or comps, even in a weakening restaurant environment. That said, it has been sort of caught in a trap of matching its own historic superior performance. For this reason, it continues to face flak from investors despite outperforming its peers such as Dunkin’ Brands and Tim Hortons (owned by Restaurant Brand International).
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China Shines Bright
Although comparable sales for China and Asia Pacific (CAP) were up only slightly due to the weakness in Japan, for China they grew 6% year over year in the quarter. The revenues in the CAP region were up as much as 29% year over year, despite the moderation in China’s GDP growth. The region continues to see numerous store openings, in line with Starbucks’ plan to have 5000 stores in China by 2021. Furthermore, the opening of first reserve roastery in Shanghai indicates the confidence and the growth potential the company sees in the country.
Roasteries To Promote Growth
Starbucks Reserve Roasteries are a way to showcase the newest coffee brewing methods and offer customers the finest assortment of exclusive micro-lot coffees from around the world, while continuing to innovate and experiment with new products such as nitro coffee, Affagato and Teavana iced teas. The success of the Seattle Roastery, which saw a significant increase in comps at 24%, is an example of the what the company hopes to achieve through these premium stores. Following the opening in Shangai, it expects to open a roastery in New York City and Tokyo in 2018, and another in Europe in 2019.
America Notches A Point Higher
After registering growth of just 4% year over year in comps last quarter, disappointing investors, Americas in the September quarter saw its comps notch a point higher to 5% year over year. The slight improvement is attributable to the strength in the beverage and breakfast sandwich line up. Undeterred by the turmoil in the restaurant industry, furthered by the weakness in the afternoon day part, Starbucks saw its U.S. business grow in every day part.
Europe, Middle East, and Africa (EMEA) A Drag
For a number of quarters now, the EMEA region has showcased anemic growth. Comps shrank 1% year over year in the September quarter, while revenues were down by 12%. This is mainly attributable to the continued economic, geopolitical and consumer headwinds throughout the region.
Strength In Channel Development
Channel Development, consisting of Consumer Packaged Good (CPG) and Foodservice, came in strong in the September quarter, with revenues up 13.5% year over year. The growth was driven by share gains in its K-Cup business and packaged coffee. The partnership with PepsiCo bore results in the Ready-to-Drink business, adding a full point to to share gain in liquid coffee and energy segment. Furthermore, it hopes to expand its ready to drink beverages internationally with partnerships such as Tingyi in China, Anheuser-Busch in the U.S.
Have more questions on Starbucks? See the links below.
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