Starbucks Earnings: Strong Results Demonstrate Reinvention Plan Progress; Shares Fairly Valued

Starbucks SBUX shares jumped 10% after the wide-moat company posted strong fiscal fourth-quarter results, with $9.4 billion in global sales (up 11%) and $1.06 in EPS comfortably topping our $8.9 billion and $0.95 estimates. With comparable-store sales growth balanced between traffic (up 3%) and pricing (up 4%), driven in part by a swelling loyalty program (approaching 33 million members in the United States, up 14% annually), the firm appears to be firing on all cylinders despite a challenging backdrop. As we digest results, we expect to raise our $103 fair value estimate by a mid-single-digit percentage.

Starbucks’ reinvention program is progressing as expected, with the coffee chain rolling out portable “cold foamers” to all of its company-owned stores in North America ahead of its fall beverage launch. Its new Clover Vertica machine for drip coffee has reached 600 stores in the U.S. (5%-6% of the company footprint), while the firm continues to lay the groundwork for its Siren System cold beverage bar rollout in fiscal 2024 and beyond. We continue to view that system as a meaningful way to achieve peak transaction volume capacity, helping underpin our forecast for average comparable-store sales growth north of 5% over the next three years in the firm’s home market. Starbucks pulled back its comparable sales guidance in the U.S. to 5%-7% for 2024 from 7%-9%, probably because of industrywide traffic pressure, but our estimate was already within the new range.

The company reaccelerated its growth investments in China, adding 326 stores (up 13% annually) during the fourth quarter. While unit economics look structurally softer than the 70% prepandemic cash return on investment—due to 30% lower average unit sales and higher construction costs—the cash return on those stores remains compelling even without a pronounced recovery. We expect management to get close to its target of 9,000 Chinese units by the end of fiscal 2025, from 6,800 today.