Starbucks Sets Foot In Jamaica, Ramps Up Global Presence

In a bid to bolster its global market share, Starbucks Corporation (NASDAQ:SBUX) has been aggressively opening stores in new and existing markets. In line with this trend, the coffee chain giant recently opened its first store in Jamaica. This is the 76th market to have been entered by the company.

The new café is located at the famous Doctor's Cave Beach on the 'Hip Strip'. The company plans to launch 14 more stores over a period of five years. These stores will offer a range of Starbucks beverages and food, including its signature handcrafted hot and cold espresso beverages made with 100% arabica coffee.

Management remains focused on increasing its global market share to boost its top line by opening new stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building. The company aims to open approximately 12,000 new stores globally by fiscal 2021, taking the total store count to an estimated 37,000. During fiscal 2017, Starbucks opened 603 net new stores globally, bringing total store count to 27,339 across 75 countries.

The company has been registering tepid comparable-store sales or comps growth in the Americas segment (particularly United States), owing to soft retail and consumer spending environment. The segment’s comps rose 3% in the last quarter, softer than the 5% increase witnessed in the preceding quarter. The company’s global comps in the last four quarters remained in the 2-4% range. Specifically, the company registered 2% global comps growth in the fiscal fourth quarter, lower than 4% growth recorded in the preceding quarter. The soft performance was due to the impact of hurricanes Irma and Harvey, which affected the company’s top line as well as U.S. comp growth by 1%.

Overall, in the wake of soft global comps growth, Starbucks lowered long-term financial targets during the fiscal fourth quarter conference call, cutting the annual earnings growth forecast to 12% versus the prior guidance for 15-20%. The company expects global comps of 3-5% and high single-digit net revenue growth (versus prior expectation of 10% or greater).

Hence, in order to counter the soft consumption trend in the United States, management has successfully focused on expansion with plans to add 900 net new stores in its Americas segment during fiscal 2018, split roughly evenly between company owned and licensed.

Apart from boosting the store count, the company is improving customer experience through innovative new store designs, up-leveling product offerings and growing margins through process and supply chain efficiencies.

Starbucks’ shares have moved up 2.9% so far this year, comparing unfavorably with the 11.2% growth of the industry. Also, the trend in current-year earnings estimate revisions is not satisfactory as it moved down by 1.7% over the past 60 days.

Zacks Rank & Key Picks

Starbucks currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same sector are Arcos Dorados Holdings Inc. (NYSE:ARCO) , Farmer Bros. Co. (NASDAQ:FARM) and Performance Food Group Company (NYSE:PFGC) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arcos Dorados' is expected to register 16.2% EPS growth this year.

Farmer has an expected EPS grow rate of 2.9% for this year.

Performance Food has an expected EPS grow rate of 16.9% for this year.

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