Starbucks continues to show why it is the top dog in coffee, delivering a frankly astonishing quarter of earnings growth, fueled by explosive same-store sales growth.
Let’s examine the headline numbers and some other metrics that will show why Starbucks stock is up 7 percent in after-hours trading to an all-time high.
Comparable store sales are the lifeblood of retail businesses like Starbucks. They tell us if consumers are coming into the stores in greater numbers and/or if the business has pricing power – being able to raise prices without losing consumer volume. That usually leads to higher stock prices.
Starbucks is crushing comps – up 7 percent in the US, 6 percent in China, and 6 percent globally.
Why are these comps considered amazing?
Were same-store sales are negative, it infers that fewer consumers are visiting the stores and/or the company has lost pricing power. That means a company may be in the stages of contraction, and not growth.
A same-store sales increase that runs between flat and up 3 percent are lukewarm for investors, unless the business is mature. Well, Starbucks is definitely a mature business, so one might only expect 3 percent.
Considering 3 percent to 5 percent comps demonstrate solid growth, and that Starbucks is at 6 percent, well, that means growth is robust.
But it’s even more impressive that Starbucks, after all these years, still generated same-store sales of 7 percent in its first market – the United States.
This increase resulted from an even split between increased foot traffic and pricing of 3 percent each.
So not only does Starbucks enjoy ongoing brand loyalty, but it is attracting new consumers to the stores while also being able to boost prices.
What’s even more amazing is that these increases show that, even with 30,626 stores around the world, Starbucks is still growing.
Revenues actually leapt 9.4 percent to $5.53 billion. Net income reached $0.78 per share, a whopping 26 percent increase over last year.
Legacy companies like Starbucks that produce explosive earnings growth that were 26 percent higher over the previous year cannot be ignored. It also more than proves that Starbucks as a concept has vastly exceeded expectations.
But that concept is not coffee.
The reason for the success of Starbucks is not coffee quality. In fact, discriminating coffee drinkers will tell you the coffee is pretty lousy.
No, the reason for Starbucks success is that Howard Schultz realized that people needed a place to get together that was between work and home. Prior to Starbucks, people had no default choice.
But with over 30,000 stores, it’s very easy to tell your Uncle Bob to meet at the Starbucks at the corner of X Street and Y Avenue.
That’s why the Starbucks® Rewards loyalty program is now 17.2 million people strong in the US alone, an increase of 14 percent over last year. That’s also why the world was able to make space for another 442 stores.
There is no stopping Starbucks and I wouldn’t bet against it, even if it’s dumb enough to get into cryptocurrency.
Last modified: January 10, 2020 2:53 PM UTC