There's no doubt that Starbucks (SBUX -1.02%) is one of the most powerful consumer brands out there, regardless of industry. The company has operations across the globe. And it has found a way to make customers pay a premium for what is otherwise just a commoditized product.
Starbucks' dominance has resulted in its stock producing a monster return of 30,600% (as of Jan. 4) since its initial public offering in 1992. Consequently, the company's market cap sits at $120 billion today.
These high-level data points are certainly impressive, but there's more to the story. Here's what the smartest investors know about Starbucks.
Navigating the macro environment
Perhaps no other topic has been on investors' minds more in the past 12 months than inflation, which is still at extremely high levels. What the Federal Reserve thought was a temporary phenomenon turned out to be more stubborn than anticipated, and this mistake forced them to quickly raise interest rates to slow down the economy.
This unfavorable situation should be a headwind for businesses. But Starbucks was still able to increase revenue and global same-store sales 11% and 8%, respectively, in fiscal 2022 (ended Oct. 2) compared to the prior year. And adjusted earnings per share (EPS) of $0.81 in the quarter exceeded Wall Street estimates.
What boosted the financial performance in the latest fiscal quarter was the fact that more than 75% of orders in the U.S. were for cold beverages. Management says that customers are more likely to customize these orders, leading to a higher average ticket.
Looking toward the rest of 2023, a recession would certainly dampen Starbucks' outlook because it does sell discretionary and premium products. However, the leadership team is optimistic, forecasting revenue growth of 11% (at the midpoint) and EPS growth between 15% and 20% for fiscal 2023. These numbers would demonstrate solid performance in a weaker economy.
Starbucks has a strong digital presence
Starbucks has long been using technology to bolster its business. Launched in December 2009, Starbucks' loyalty program is a critical example of this. It has been offered in the U.S. for about 13 years now. And as of Oct. 2, it counts 28.7 million 90-day active rewards members, up 16% year over year.
By being a member, customers receive perks like free food and beverages, as well as the ability to order ahead for added convenience. Starbucks gains tremendously by being able to drive repeat purchase behavior. Why shop at a competitor when you can rack up points (or stars, as they're called) at Starbucks? Furthermore, the company gathers valuable data on consumer trends while at the same time having an important channel to drive engagement.
Starbucks knows how to incorporate technology into its business model, a competency that would help any enterprise out there. The company's latest introduction is an innovative rewards platform known as Odyssey, which essentially incorporates web3 technology and non-fungible tokens to provide even more benefits to Starbucks' most loyal and engaged customers.
Expansion opportunities
With 35,711 stores in the global footprint today, readers would rightfully think that Starbucks is ubiquitous, seemingly operating in nearly every corner of the world. But the growth story is far from over. Starbucks wants to have 55,000 locations open by 2030, which would equate to a 54% increase over the next seven to eight years.
For comparison's sake, McDonald's, the restaurant company with the most locations across the globe, currently has roughly 40,000 restaurants worldwide. If Starbucks is able to hit the 55,000 target, it would easily make it the largest restaurant concept in the world.
Starbucks currently has about 6,000 stores in China right now, with plans to open 3,000 more over the next three years. Sales are also expected to double during the same time, making China the fastest-growing market for the business. Because of COVID-19-related lockdowns in the country, Starbucks' same-store sales dropped 16% in China in the fourth quarter of 2022. But over time, this issue should dissipate, and the coffeehouse chain should return to posting outsized growth in the nation as we look ahead.
By now, investors should be well equipped with the right information about Starbucks' business.
