Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

What Starbucks Wants You to Know

By Demitri Kalogeropoulos - Updated Apr 10, 2019 at 12:34PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here are some highlights from the coffee titan's latest earnings call with investors.

It's too early to call it a comeback, but Starbucks' ( SBUX 2.54% ) business is clearly on the mend. The coffee titan just opened its new fiscal year by continuing -- and in some cases improving on -- the encouraging trends that drove its strong close to fiscal 2018.

In a conference call with investors, CEO Kevin Johnson and his executive team went over a few of the major contributors to those robust results while outlining the biggest challenges going forward. Below, we'll look at a few highlights from that presentation.

A man and woman eating breakfast at a cafe.

Image source: Getty Images.

Not a fluke

The positive business momentum that we experienced in the fourth quarter of fiscal 2018 clearly sustained throughout Q1.
-- Johnson

Starbucks' 9% overall revenue growth was powered by the combination of 4% higher sales at existing locations, or comps, and a 7% increase in the store restaurant base. Looking deeper into the results, they indicate that last quarter's rebound wasn't just a fluke and that the business is on stronger footing than it was in early fiscal 2018.

Customer traffic was flat in the key U.S. market, which represented the second straight quarter of improving transaction trends. Starbucks also stabilized in China with a 1% comps uptick.

Getting back to basics

Beverage, our highest-margin category, was the primary driver of U.S. comp growth.
-- CFO Pat Grismer

Starbucks improved its dining experience in a few ways, including by reducing tasks for employees so they could spend more time serving and connecting with customers. The bigger success came from moving back toward its roots, though, with staple espresso beverages and new introductions like nitro delivering almost all the sales gains. Food was a modest positive, meanwhile, and Starbucks' retail sales were again a slight drag as the company cleaned up its shelves.

Playing the long game in China

This month marks the 20th anniversary of Starbucks in China, and we continue to play the long game with our purpose-driven growth agenda.
-- Johnson

China is Starbucks' second-largest market behind the U.S. and is its biggest growth opportunity, with thousands of additional stores planned there over the next few years. That's why it was good news for the business that sales stayed in positive territory for the second straight quarter. I's 1% comps uptick, executives said, consisted of a 2% drop in customer traffic and a 3% increase in average spending.

Management says they're happy to see that the latest crop of stores is delivering strong returns. They caution that the selling environment could stay difficult over the short, term, though. "With a large and growing addressable market around coffee," Johnson said, "we expect competition to remain highly promotional and disruptive."

A rare upgrade

Our growth-at-scale strategy is working, and our leadership team is fully committed to the future growth and vibrancy of Starbucks.
-- Johnson

Starbucks left most of its full-year targets, including new store openings and profitability, unchanged. It upgraded its core growth forecast, though, to call for comps of between 3% and 4%. At the start of the fiscal year, executives cautioned that growth would land at the low end of that range but now they're comfortable erasing that qualification.

Check out the latest Starbucks earnings call transcript.

Sure, that constitutes a minor upgrade. But given that Starbucks failed to meet expectations in each of the last two fiscal years, the boost suggests the business has stabilized and is perhaps on the cusp of a rebound. The next few quarters of sales growth, and particularly customer traffic trends, will determine whether that recovery happens or not.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$111.42 (2.54%) $2.76

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.