Starbucks Corporation (NASDAQ:SBUX) is currently experiencing positive momentum driven by strong sales both in North America and internationally, coupled with effective expansion strategies. Additionally, the company’s commitment to product innovation adds to its appeal.

Starbucks anticipates a noteworthy growth of 10.1% in earnings and 17% in sales for fiscal 2024 on a year-over-year basis. However, there are concerns related to high costs and economic risks, leading to a decline in earnings estimates for fiscal 2024 over the past 30 days, reflecting analysts’ apprehensions about the stock’s growth potential.

Let’s delve into the key factors supporting the case for investors to retain Starbucks stock.

Strong North America & International Comps Growth: Starbucks has impressed investors with 11 consecutive quarters of robust North America comps growth. In the fourth quarter of fiscal 2023, the North America segment achieved an 8% growth in comparable store sales, a 4% increase in net new company-operated stores, and robust licensed store sales. The segment’s average ticket and comparable transactions increased by 6% and 2%, respectively, on a year-over-year basis.

Internationally, Starbucks reported net revenues of $1,979.9 million, marking an 11% YoY increase. The growth was fueled by a 5% improvement in comparable store sales, a 12% increase in net new company-operated stores, and strong performance in licensed store revenues, partially offset by a 3% negative impact from foreign currency translation.

Strategic Expansion Efforts: Starbucks is focused on enhancing its global market share through strategic initiatives such as store openings, remodels, technology deployment, cost control, and robust product innovation. In fiscal 2023, the company opened a significant number of net new stores worldwide, reaching a total global store count of 38,038. For fiscal 2024, Starbucks aims for a 4% growth in U.S. store count and a 13% growth in China, contributing to a projected global store growth of approximately 7%. Capital expenditures for fiscal 2024 are estimated to be around $3 billion.

Emphasis on Innovation: SBUX continues to diversify its product portfolio with innovations in beverages, refreshments, health, wellness, tea, and core food offerings. Collaborating with Beyond Meat for a plant-based lunch menu in China and the success of the Starbucks Oleato beverage range are notable examples of the company’s commitment to offering innovative and healthier choices.

Concerns

Despite these positive aspects, Starbucks stock experienced a 5.3% decline in the past year, contrasting with the 2.4% rise in the Retail – Restaurants industry. Inflationary pressure has been a hindrance, leading to increased ingredient costs and a subsequent impact on margins. Total operating expenses for fiscal 2023 increased by 9.4% year over year, reflecting these challenges.

Furthermore, as a retail restaurant, Starbucks is susceptible to fluctuations in consumer discretionary spending. The company’s performance is closely tied to the overall macroeconomic scenario and consumer spending patterns, making it vulnerable to the inconsistent nature of consumer discretionary spending.

Featured Image: Unsplash @ June Andrei George

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