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How Investors Will Know Whether Starbucks Has Finally Turned the Corner

By Demitri Kalogeropoulos – Apr 19, 2019 at 3:00PM

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These three numbers would show a healthy rebound for the coffee giant's business.

Starbucks (SBUX 0.04%) stock is back to its winning ways lately, rising almost 30% in the past year compared to an 8% jump in the broader market. The coffee giant is riding a wave of investor enthusiasm about a potential business rebound after two years of disappointing results.

But while there have been encouraging signs of improving operating trends over the last six months, these metrics haven't yet put the chain's prior growth struggles behind it. That narrative could flip when Starbucks reports its fiscal second-quarter results on Thursday, April 25.

Let's take a closer look at the metrics that would show the restaurant chain has upped its game and is finally back on track.

Coffee beans on a table next to a cup of coffee on a saucer

Image source: Getty Images.

Customer traffic at home

Starbucks has been struggling with weakening customer traffic trends in the core U.S. market for years. Gains there peaked at 3% in 2015 before falling to 1% the next year. Traffic then turned flat in 2017 and fell into slightly negative territory last year. Rising spending has cushioned those declines, with help from things like higher prices and a bigger food menu. But the company can't continue growing if customer trends stay weak.

The good news is the traffic metric improved in each of the last two quarters, culminating in a flat result in fiscal Q1. Thus, it's possible that the chain will announce a return to rising traffic this quarter that could support comparable-store sales gains at least equal to the prior quarter's 4%.  

China comparable-store sales

China is Starbucks' second-biggest market, and management is counting on that geography to deliver much of its broader sales and earnings growth over the long term. That's why it was disappointing to see the business hit a wall over the last few years, with sales gains falling to about 1% in 2018 from 3% in each of the prior two years. The China segment even slipped into negative territory late last year.

Since then, though, the region has posted modestly higher results over the last six months. Investors are hoping for this momentum to carry through to the rest of fiscal 2019, but CEO Kevin Johnson and his team aren't predicting any sharp rebound. "We expect competition to remain highly promotional and disruptive," Johnson said in late January.

Starbucks' biggest challenge in China today is finding a way to tap into intense consumer demand for home delivery without compromising on quality or profitability. We'll find out on Thursday how well the company met that target over the last few months.

Global growth outlook

Starbucks edged its global growth forecast higher last quarter so that it is targeting around 3.5% at the midpoint of guidance compared to the 3% that executives had predicted a few months earlier. That's not much of a boost, but it does represent an encouraging change in tone from prior years, given that the coffee chain had to lower its outlook both in fiscal 2018 and in 2017.

If Johnson and his team affirm their higher forecast on Thursday, or give it another nudge up, then investors can feel confident concluding that management has stabilized the business. The next step would be accelerating growth on an annual basis, which shareholders haven't seen since 2015.

Demitrios Kalogeropoulos owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

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