Coffee drinkers still love Starbucks (SBUX 0.18%). But investors haven't been as excited about the coffee shop giant in recent times. The stock has slipped more than 20% so far this year. Its performance is about in line with that of the S&P 500 Index.
Starbucks faces the challenge of inflationary pressures -- like many companies that depend on consumer spending. But, on a brighter note, Starbucks recently set out a new growth plan. So, it's fair to say the company has reached a big inflection point. Considering the stock price today and what may be ahead, is Starbucks a buy right now? Let's find out.
A movement to unionize
First, let's take a look at Starbucks' current situation. The company has faced challenges in recent times. A movement to unionize has gathered momentum among some Starbucks workers. So far, unionized stores represent only about 3% of Starbucks' total number of shops, NPR reports. But if the trend to unionize picks up speed, it could result in greater costs for Starbucks down the road. It's a point to watch.
Inflationary pressures have also weighed on earnings this year. GAAP operating margin fell 400 basis points to 15.9% in the most recent quarter -- the 2022 fiscal third quarter. And Starbucks is dealing with coronavirus restrictions in its second-biggest market of China.
It's also important to note that higher inflation is hurting consumers' wallets. So, they may think twice before going back for a second pumpkin spice latte.
With this as a backdrop, the announcement of Starbucks' Reinvention plan seems like a breath of fresh air. It's a sort of roadmap from fiscal 2023 through fiscal 2025. One key area of focus is Starbucks' stores.
The company plans on investing $450 million in its already existing fleet of U.S. stores. And, globally, the company's store portfolio will increase 7% annually through the Reinvention plan period. By 2025, Starbucks aims to reach 45,000 stores worldwide.
Formats to suit customers' needs
But Starbucks isn't just opening stores for the sake of expanding. The company plans to open formats that work best to suit customers' needs in a particular area -- from cafes to locations that uniquely handle delivery and drive-thru.
Starbucks is also making innovation a priority. This should help keep customers coming back and streamline operations. For instance, the company has developed a technology that cuts down the steps in making cold press coffee to less than four from more than 20. Starbucks will start testing this in stores in fiscal 2023.
The company also plans on improving its digital experience for workers and customers internationally to increase use of digital in these markets. And it aims to accelerate growth in the important market of China. Starbucks predicts sales there will double over the coming three years.
Finally, Starbucks expects these and other efforts to lead to 10% to 12% annual revenue growth globally during the three-year period. Starbucks forecasts non-GAAP earnings-per-share growth of 15% to 20% annually.
Can Starbucks achieve its goals?
Starbucks is starting off at a tough moment. Higher inflation, as mentioned earlier, may affect certain consumers' buying decisions. And inflationary pressures may continue to weigh on Starbucks' operations as well.
At the same time, Starbucks' revenue and customer loyalty haven't demonstrated signs of weakness. In the most recent quarter, consolidated net revenue rose 9% to a quarterly record. Active members of the Rewards program in the U.S. climbed 13%. This is key because Rewards members drive more than half of revenue in company-operated stores.
Today, Starbucks shares are trading at 26 times forward earnings estimates. That's down from about 40 earlier in the year. This looks reasonable considering Starbucks' track record -- and future prospects if the Reinvention plan unfolds smoothly.
Of course, there's no guarantee Starbucks will meet all of its growth plan goals. So, if you're a very cautious investor, you may want to wait for some reports of progress before buying shares.
But I'm confident this effort to refocus according to what customers want and improve productivity is the right move. And that's why, if you can accept a bit of risk, today may be a good time to get in on Starbucks' new era of growth.