WIf he currently wants to have the popular calorie bomb White Chocolate Mocha Frappuccino delivered to his home by the American franchise chain Starbucks via the Lieferando delivery service in Germany, he has to put 5.29 euros on the table for the coffee alone. Pretty awesome.
However, the coffee house chain has never been known for having particularly cheap offers – which may primarily please long-standing shareholders of the company. Rather, an attitude to life was always sold that simply everyone with a smartphone or laptop could experience the highest coffee enjoyment in the branches alone or with friends and acquaintances. An investor could make good money with it.
Anyone who invested 10,000 euros in Starbucks shares ten years ago was able to make more than 47,000 euros out of the position with coffee, sweet pastries & Co. – and that despite the headwind that Starbucks has been facing recently. In times of the Corona crisis, visiting Starbucks was only possible to a limited extent, and with the currently prevailing inflation, customers are now asking themselves again whether they want to spend so much money on a coffee when at the same time they are facing increasing expenses for rent, electricity, food or have to think about the petrol at the gas station. Not an easy situation for the new CEO, who will be in charge of the company from April next year.
Starbucks makes an important strategic shift
At the beginning of September, the company announced that Laxman Narasimhan would take over the CEO post from April 1, 2023. He will be relocating from London to the Seattle area. In Great Britain he worked for the consumer goods company Reckitt Benckiser. There he was involved in the implementation of a new strategy. At Starbucks, too, it will be about making an important shift in strategy. The list of tasks is long. In addition to inflation, the withdrawal from Russia and the ongoing consequences of COVID-19 with a lockdown-related weakness in China business and the efforts of employees in the USA to form unions, further challenges await.
Christopher Scherbaum
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Image: Christoph Scherbaum
However, it was reserved for interim CEO and Starbucks founder Howard Schultz to present these new plans for the group. However, shareholders should have rejoiced in view of the key data. The goal is to increase comparable sales, i.e. in branches that have been open for at least a year, by an average of seven to nine percent annually by 2025. The previous target range was four to five percent. Group sales are expected to increase by 10 to 12 percent, while adjusted earnings per share are expected to increase by as much as 15 to 20 percent annually.
Among other things, a larger number of branches should contribute to the growth. Between 2023 and 2025, this is expected to grow by seven percent annually. Previously, an annual increase of six percent had been assumed. These new branches are to be built primarily in the USA. In China, on the other hand, annual growth in the number of branches is expected to be 13 percent. The target is 45,000 stores by the end of 2025, while this number is expected to increase to around 55,000 stores in 2030.
Stock exchange takes Starbucks targets positively
At the same time, investments are being made in the equipment of the branches, in addition to the expansion of the range and the digitization of the ordering and payment process, the work of the baristas should be made easier. Another important factor is the Starbucks Rewards loyalty program. This already has 28 million active members and these are hard cash: they are already responsible for more than half of the orders. As digitization progresses, this number is set to increase further.
The new plans were well received on the market. Barclays analyst Jeffrey Bernstein said all key growth metrics would accelerate as part of the new forecast. As a result, Starbucks’ stock price target was raised from $96 to $100 while maintaining the overweight rating. The Barclays analyst even sees a “new era of above-average growth” for Starbucks.
Wedbush’s Nick Setyan points out that the new forecasts indicate expected growth in both transactions and average prices. In addition, China’s medium-term potential is highlighted in view of demographic developments. Despite all the positive assessments, recent shareholders have had to put up with a real roller coaster ride with the Starbucks share price:
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For detailed view
After a record high of $99.70 in July 2019, the price collapsed to $50 by March 2020. From this bottom, a new price rally started, during which it went up to a new all-time high of around $126 by July 2021. After another sharp setback to $68 in May of this year, prices have since risen to around $93 at times. This surpassed the 200-day line, which is important for many long-term investors. This resulted in a new buy signal, which increases the chances of further rising prices, since the share is listed in a long-term, overarching upward trend.
Over a ten-year period, this translates into an average price gain of 14.1 percent per year. The result is therefore significantly better than that of the market as a whole. The broad American S&P 500 index, in which the share is listed, increased by an average of 10.9 percent annually over the same period. Starbucks is also quite interesting from a dividend perspective. The group has been a very reliable dividend payer in recent years. The distribution has been increased continuously for eleven years now, by an average of around 20 percent annually.
