Here’s Why Store Expansion Is Crucial For Starbucks’ Valuation

by Trefis Team
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Starbucks (NASDAQ: SBUX) is expanding aggressively, especially in China, however the company is struggling to grow revenues from existing stores with declining comparable sales. Based on its 2017 fiscal year results, the company has revised its comparable sales growth numbers to the range of 3% to 5%. While this is higher than what competitors such as Dunkin’ Brands are likely to achieve, it is much lower than the 8% comparable sales growth Starbucks achieved in Q1 2016. With existing restaurants reaching a slow growth phase, a significant portion of the company’s growth is likely to come from adding new restaurants. According to our estimates, nearly $13 billion of Starbucks’ valuation is likely to come from store expansion.  The charts below show Starbucks’ valuation with and without store expansion and the impact of no expansion on our price estimate.  You can click here to access this interactive model and modify the charts.

We estimate that a significant portion of Starbucks’ revenue growth over the next few years will come from opening new stores. While average revenue per store is likely to increase over our forecast period, this increase is not very significant. Starbucks is focused on increasing the average spend per customer at its restaurants by focusing on food and gourmet coffee, however we do not expect a significant growth in revenues from these initiatives over the next few years, as comparable sales growth remains slow.

Starbucks is likely to add a significant number of company owned and licensed stores over our forecast period:

This growth is likely to have a significant impact on the company’s revenues and valuation. You can modify these forecast numbers here and analyze the impact of a change in the pace of growth in restaurants on Starbucks’ valuation.

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