The year 2019 has so far turned out to be an eventful one for Retail-Restaurants industry. Year to date, the industry has rallied 16.7% compared with the S&P 500’s 13.3% increase. Meanwhile, Starbucks Corp. SBUX, which belong to the same industry, has gained 20.6% over the same time frame.
Currently, this Zacks Rank #2 (Buy) company is benefiting from solid global footprint, successful innovations, best-in-class loyalty program and robust business in China as well as Americas. Let’s delve deeper.
Starbucks’ impressive share price performance can be primarily attributed to earnings beat over the past four quarters. Furthermore, the company benefited from a robust performance by the Americas and China-Asia-Pacific segments, and store openings. Also, comparable sales from China increased for the third straight quarter. During 2019, the company expects to open 600 net new stores in Americas.
Following the better-than-expected second-quarter results, Starbucks raised its fiscal 2019 guidance. GAAP EPS is envisioned to be $2.40-$2.44, up from $2.32-$2.37 projected earlier. Also, non-GAAP EPS is expected to be $2.75-$2.79, up from $2.68-$2.73 guided previously.
In the last two years, management successfully turned around its EMEA business by improving customer experience via innovative new store designs, up-leveling product offerings and margin expansion through process and supply chain efficiencies. In fact, the China Asia Pacific or CAP has now become the fastest growing segment. China delivered 3% comps growth in the second quarter. With increasing investment in the Asian markets, the Starbucks brand is gaining popularity among consumers across Asia.
Management believes that China and the Asia-Pacific region will fetch more meaningful business over the next five years supported by rapid unit growth, growing brand awareness, and increased usage of the digital/mobile/loyalty platforms. To drive growth in China, the company has announced a historic partnership with and Alibaba for providing seamless Starbucks Experience. In Beijing and Shanghai, Starbucks has started delivery services via Alibaba’s Ele.me platform.
Notably, Starbucks Delivers program has expanded to more than 2,100 stores across 35 cities in China. By the end of 2019, the company expects to expand Starbucks Delivers to 3,000 stores across 50 cities in the country.
Meanwhile, Starbucks’ loyalty cards are gaining popularity. In the United States, the company’s membership increased 11% year over year under the My Starbucks Rewards (MSR) program in fiscal 2017 and rose 15% to 15.3 million active members in fiscal 2018. The momentum continued in second-quarter 2019 as well, with the membership growing 13% year over year to 16.8 million active members.
Customers in the United States are using the chain’s mobile app to order and pay for drinks. They are also joining the company’s rewards program. Currently, MSR is one of the most important business drivers of Starbucks. Launched four months ago in China, this loyalty program had a total of 8.3 million members, which increased by 1 million in second-quarter fiscal 2019.
Other Key Picks
Other favorably-ranked stocks worth considering in the same space include BJ’s Restaurants, Inc. BJRI, Chipotle Mexican Grill, Inc. CMG and The Habit Restaurants, Inc. HABT, each carrying the same rank as Starbucks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BJ’s Restaurants, Chipotle Mexican Grill and Habit Restaurants’ long-term earnings are likely to witness a 14.5%, 19.2% and 20% growth, respectively.
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