Starbucks Continues To Beat Consensus, On Track With Focus On China

by Trefis Team
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Starbucks (NASDAQ: SBUX) recently reported its Quarter 1 results (ended December 2018) for the Financial Year 2019. The company beat the consensus in revenues and earnings and posted $6.6 billion and $0.61 respectively. The total revenue is up by 9% year on year (YOY) and comparable sales are up by 4% globally driven by 3% in average ticket. China’s comparable sales are up 1% YOY but the Total stores are up by 18% YOY. The company opened 541 net new stores with over two-thirds outside the US and about 50% licensed among the same. This takes the Total Store count to 29,865 at the end of December 2018.

We maintain our $66 price estimate for Starbucks. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard on Our Outlook For Starbucks In 2019 to modify different drivers, and see their impact on the EPS and price estimate for Starbucks.


Key Factors That May Impact Future Performance:

Growth in China: China comparable store sales increased 1%, with transactions down 2% for the quarter. It continues to remain a long-term growth driver for the company, as its GDP, projected to exceed $15 trillion by 2021, is expected to fuel a massive increase in its middle class. The company is on plan to open a net 600 new stores in China in Fiscal 2019 (1100 net in Asia-Pacific) with the Asia Pacific region gaining 259 net new stores in the quarter. The partnership with Alibaba is expected to boost the delivery sales and give a perfectly unique experience to the customers.

Cold Beverage Innovation: The company drives innovation through its stores to meet consumer preferences. The company has seen the proven highly incremental results from Draft Nitro Cold Brew. The company reaffirmed its stance regarding the cold beverage and mentioned during the investor call that they have seen a huge growth with the same and have increased the presence to 40% of total US outlets by the end of quarter 1.

Starbucks Delivers: Starbucks is working with (as part of its partnership with Alibaba), China’s leading on-demand food delivery platform with 3 million registered delivery riders, to give its customers the best delivery experience possible. The company has started two ‘Star Kitchens’ within two FRESHIPPO supermarkets in Shanghai and Hangzhou. This makes Starbucks the first retail brand to establish a dedicated back of house presence in FRESHIPPO locations to utilize its distinct fulfillment and delivery capabilities to further reach and better serve customers. In the first quarter the company has started the Starbucks Delivers program in more than 2000 stores in China. The program is already contributing mid-single digit transaction mix in key markets of Beijing and Shanghai.

Global Coffee Alliance: Starbucks with Nestlé are moving fast to develop the company’s At-Home coffee portfolio. Starbucks announced that both companies have developed a range of Starbucks-branded products for the Nespresso and Dolce Gusto platforms and Roast & Ground and Whole Bean coffees. The company reaffirmed the launch of these products in traditional CPG and Foodservice channels will take place beginning in the spring of this year.


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