Morningstar | SBUX Updated Forecasts and Estimates from 06 May 2019
Despite uneven U.S. traffic trends, an evolving competitive set in China, and an increase in substitute products across multiple dayparts, we view Starbucks as a compelling consumer growth story, poised for top-line growth and margin expansion through menu innovations, sustainable cost advantages, and evolution into a diversified retail and consumer packaged goods platform. Although it is already the leading specialty coffee retailer in the United States, we believe Starbucks still has meaningful domestic growth potential, including new store formats (including premium destination locations as well as smaller-format express stores, drive-thrus, and kiosks), new menu innovations (led by cold beverages and health/wellness products), greater peak-hour capacity via Mobile Order & Pay, expanded food offerings, lunch/evening daypart expansion, and a delivery partnership with Uber Eats. With expectations of continued domestic growth, we also expect improved domestic cash flow through improved My Starbucks Rewards member acquisition/engagement techniques, simplified store operations/technologies, the closure of underperforming stores, and a reduction in selling, general, and administrative expenses.Starbucks is much more than a U.S. retail story; it's just starting to scratch the surface of its long-term channel and geographic growth potential. Many of Starbucks' core retail competencies should facilitate these efforts, putting it in a position to capture retail and wholesale market share in China (aided by a partnership with Alibaba's Ele.me) and many other emerging consumer markets. Platforms like K-Cups and Nespresso should support channel diversification over the medium term, boosted by the Global Coffee Alliance marketing/distribution partnership with Nestle. Longer term, we're also optimistic about mobile, digital, and loyalty program synergies across the various business lines; new payment technologies; and international unit expansion opportunities. Competitive threats exist in both the retail and wholesale channels, but a wide moat built on strong brand equity, bargaining clout with suppliers of all kinds, and a leverageable model will help to stave off rivals.Starbucks is a roaster, marketer and retailer of coffee. The company's segments are: Americas, which is inclusive of the United States, Canada, and Latin America; International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, and Africa; and Channel Development. The company's Americas and International segments include both company-operated and licensed stores. The company's Channel Development segment includes roasted whole bean and ground coffees, Seattle's Best Coffee?, Starbucks- and Teavana-branded single-serve products, a variety of ready-to-drink beverages, and other products sold worldwide outside of the company's company-operated and licensed stores.
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