Starbucks (SBUX -0.34%) has been trading about $10 below its 52-week high of $61.94. That's largely because while growth has been strong, same-store sales have posted only limited gains.
Revenue rose by 11% in the third quarter, but the company only saw same-store sales increase by 1% in the United States and globally. In China, the company's second-largest and fastest-growing market, same-store sales actually dropped by 2% in the third quarter.
None of this news has caused a panic, but it has caused Starbucks's stock to falter. Investors aren't worried that the chain will start moving in the wrong direction, but they are concerned that the chain's high-growth days may be over.
Image source: YCharts.
Have no fear
CEO Kevin Johnson isn't building a company for one quarter or even the next year. He's laying a foundation for Starbucks to be well positioned for decades to come. Those moves will take time to pay off, but you can see some positive signs in the Q3 results.
The chain has a multipronged approach, for example, to grow its digital audience. That includes its Starbucks Rewards loyalty program, which added 1.9 million members in Q3, a 14% increase. The company has also begun collecting email addresses for nonmembers who use its Wi-Fi.
"Our digital reach is expanding by every measure, including a double-digit increase in active Rewards membership year over year, and the addition of 6 million digitally registered customers who are not yet Rewards members, but who have established a digital connection with Starbucks," said Johnson during the Q3 earnings call.
Starbucks has been rapidly expanding in China. Image source: Starbucks.
It's not just digital
Johnson has also worked on changing how the company introduces new products. Starbucks will still use seasonal offers, but it has moved away from gimmick short-term products like the Unicorn Frappuccino. The new program will ideally lead to new platforms like cold brew or the company's cold foam that can be building blocks for growth.
"Our beverage innovation platform is working," he said. "We have a full pipeline of new beverages on the horizon to delight our customers in the quarters ahead. Beverage innovation is fueling growth in our platforms of coffee, tea, and refreshers, and offsetting some of the softness we've seen in blended."
China is growing
While the same-store-growth number in China disappointed in Q3, Starbucks remains committed to the market. The company has been opening around a store a day in the country, and Johnson believes strongly in the chain's strategy.
"Now, keep in mind that this quarter alone excluding the East China integration, we grew total transactions in China in the mid-teens," he said. "We are, by design, in a phase of growth in China that is primarily driven by new store expansion. We also acknowledge the need to move faster to enable delivery in China, and we are committed to piloting delivery this fall in two key cities -- Beijing and Shanghai -- with the intent to expand from there."
The future is bright
Delivery will also play a growing role in the United States. In addition, the company has just started its multibillion-dollar deal with Nestle (NASDAQOTH: NSRGY), which will bring its packaged goods into more retail stores and onto the Nespresso platform. That, along with the growth potential of the Starbucks Reserve premium brand, will also provide new opportunities to grow sales.
Starbucks has a lot of growth opportunities, and the chain is operating from a position of strength. It may experience hiccups as it launches delivery or in its rollout of the Reserve bars to 20% of its U.S. stores. That won't be a long-term problem, as the company has the resources to course correct as it goes, and it has multiple initiatives that should be able to restore its high-growth mojo.
