The much-anticipated Starbucks (SBUX) Investor Day took place on Sept. 13, and it did not disappoint. The company announced a slew of innovations and accelerated its growth roadmap for the next several years. Considering recent challenges, investors were likely relieved to hear the rosier expectations from Starbucks.
So based on the latest announcements, does this make the stock worth buying today? Let's find out.
Excellent growth expected ahead
The company's revamped three-year revenue outlook is what took the spotlight during this big day. The company boosted its global revenue guidance from a 9% annual jump to 11% for fiscal 2023 through fiscal 2025. Considering the company has grown revenue at an average 9.9% annual rate over the past decade, this represents a meaningful acceleration.
Management believes this will result in outsized earnings improvements. Not only is the company anticipating impressive margin expansion over the next three years, but the company's non-GAAP EPS is estimated to jump 17.5% annually over the same period.
What does it plan to do with all of these earnings? In addition to investing internationally and building on its digital operations (more on that soon), Starbucks hopes to return lots of cash to shareholders in the form of dividends and buybacks. Over the next three years, Starbucks plans to return $20 billion to shareholders in these forms, representing roughly 19% of the company's current market cap.
All of this is fantastic news for existing shareholders. These projections imply a meaningful acceleration from historical rates, which is noteworthy given the company's worldwide scale. It's certainly not going to be easy to reach these levels, so let's examine precisely how the company plans to do so.
A side of international ambitions
The primary lever that Starbucks is going to pull is international expansion. The company is one of only a few American businesses that have thrived in China, which should continue. Management forecasts a 13% annual rise in the country's store count. As of its fiscal third quarter (ended July 3), Starbucks had 5,761 stores in China. This increase in store count should help the company reach its long-term goal of 55,000 stores globally by 2030 and 45,000 by the end of 2025.
Additionally, the company sees sales in China doubling over the next three years, which is impressive given that the company is already near scale in the region; in fiscal Q3, Starbucks generated over $544 million in revenue from the country.
China isn't the only region that Starbucks wants to thrive in, however. Management expects that, over the next three years, 67% of retail growth will come from international stores, so this is a lucrative pond that the company is fishing in now.
What's the primary driver of adoption the company is focused on? Digital ordering. Only 10% of international licensed store sales are through digital channels today. To increase this level, Starbucks announced the launch of Starbucks Digital Solutions, a platform enabling international stores to deliver a consistent digital experience for customers everywhere. This should supplement the adoption of digital ordering worldwide, and will likely be a primary contributor to its digital rewards member count, which was already high at 27.4 million members globally in fiscal Q3.
Is Starbucks stock a buy?
There's a lot to get excited about here. After all, what's not to like about steady shareholder-friendly actions, stable success in the U.S. and China, and innovations driving victory in emerging markets?
However, there's one uncertainty still looming: Starbucks' new CEO Laxman Narasimhan. Long-time CEO Howard Schultz has been stepping in and out of the corner office over the past few decades, so many investors (myself included) hope that Narasimhan stays in the C-suite for the long haul.
Schultz will serve as interim CEO until April 2023, while Narasimhan will spend this time going to stores, meeting management, and immersing himself in the company. What's still up in the air is how well Schultz and Narasimhan will work together. Starbucks is Schultz's baby, so any disagreement between the two on how to operate the company could result in animosity, and possibly even poor management. Therefore, monitoring their relationship as Narasimhan takes over will be vital.
That said, Starbucks looks like an incredibly appealing company to own for the long haul. The company's Investor Day shows an optimistic outlook for the future, highlighted by continued digital execution and high adoption in emerging markets. At just 26 times earnings, shares aren't too expensive either. This valuation is much lower than other staple U.S. food and beverage stocks, potentially signaling that now is the time to buy shares of Starbucks.