Just in case anyone was concerned that maybe the whole coffee fad was going to fade, same-store sales at Starbucks (NASDAQ:SBUX) rose 4% in its fiscal first quarter. The market, of course, rewarded it for delivering better-than-anticipated results, but there are a few grounds in the bottom of the cup that need to be addressed.
As Motley Fool Money host Chris Hill and Fool senior analysts Aaron Bush, Ron Gross, and Jason Moser discuss in this segment of the podcast, all the comps gains came from higher prices -- the same-store traffic numbers were essentially flat. And China -- where the company's real growth is coming from -- is an area of concern for multiple reasons. The group assesses those points, what's next for Teavana, the possibility of shifts in strategy now that Howard Schultz has stepped away from the CEO job, and more.
A full transcript follows the video.
This video was recorded on Jan. 25, 2019.
Chris Hill: We begin this week with Starbucks. Same-store sales in the first quarter grew 4% here in the United States. Shares of Starbucks up on Friday. Ron, close to a new all-time high.
Ron Gross: Pretty solid quarter. Beat expectations. As you said, 4% comps. Traffic was flat, something to keep an eye on. All the growth came from spending more money, not on an increase in the number of stores. We don't love to see that. We'd like to see both. China's the big story here, we have to rely on growth in China. They entered 10 new cities. They expanded their store base by nearly 18% during the quarter, nearly 3,700 outlets. The growth is on track, but there's some worry about China, whether you're Apple or many other companies. We need to keep an eye on it.
Aaron Bush: I would add that, as my yellow flag, they grew their store count 18%, but in China, the comps were just up 1%, which is below average for the whole world. Thinking about, as we talked last week, with potential slowdowns in China, if their China growth strategy is so reliant on opening new stores, at some point, that could come to bite them.
Jason Moser: Not just regular stores. Those big Reserve Roasteries they've been talking about opening, at one point or another, Shultz talks about this grandiose vision of 1,000 of those around the world. That's obviously been pulled back quite a lot. But it's interesting to see, China has been a big part of the story, a big part of the growth story that we've talked about for the last few years. With Howard Schultz at the helm, it was a bit clearer and more understandable, the strategy, and perhaps a little bit more believable based on the time he spent there. I think today, with Schultz gone, perhaps we have a few questions there as to how that strategy is going to play out, or if they maybe need to pull back on their own expectations.
But at the end of the day, it's still Starbucks. It's still coffee and it's still going to do OK, I think.
Gross: I think so, too. I like some of the moves Kevin Johnson has made. Turned over a lot of the consumer business, products business to Nestle, got them out of the tea business. As you said, curtailed that 1,000-store buildout of the Reserve brand, which I was questioning from the get-go, adding on delivery, increasing mobile ordering. A lot of good initiatives in the works. You know what it's all going to hinge on? China.
Moser: Also, getting out of the tea business, you mean unloading those physical Teavana stores and bringing that brand in-house. With the success that they had with Tazo Tea back when they first launched that business, I suspect they'll be able to continue that success going forward with Teavana. It's still a strong brand. I'm actually kind of happy to see them bring that in-house and not deal with all that extra baggage.
Gross: Twenty-five times earnings at the moment. Not incredibly expensive, not dirt cheap by any means, but it's a growth story. It's probably a fairly good investment at this point.
Aaron Bush owns shares of AAPL and Starbucks. Chris Hill owns shares of Starbucks. Jason Moser owns shares of AAPL and Starbucks. Ron Gross owns shares of AAPL and Starbucks. The Motley Fool owns shares of and recommends AAPL and Starbucks. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends NSRGY. The Motley Fool has a disclosure policy.