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Starbucks 3Q 2016 numbers - strong store rollout

At the end of last week we had 3Q numbers from Starbucks, which missed some analyst estimates. To say that they missed estimates is not to say they had a poor quarter, they still grew revenues by 7.3% to $5.24 billion and grew EPS by 24% (not too shabby hey nige).

They missed analysts estimates on same store sales. In the USA they had growth in same-store sales of 4%, the first time it was under 5% in 26 quarters. There was very strong growth out of China, where same store sales were up 7%. There are currently 2 300 stores in China with the goal to have 3 400 by 2019. The expectation for China is that it will be a bigger region for Starbucks than the USA over the long term. Currently Revenue from 'America' is $3.6 billion for this quarter and the 'China/ Asia Pacific' region is much smaller on 768 million, so it has to more than quadruple to be at the current figure.

The reason to own Starbucks is due to their very powerful brand. Thanks to the very strong global brand they are able to open new stores with almost no limit. Currently there are 24 395 stores in 74 countries. They opened 1 876 stores over the last 12 months, just over 5 new stores a day! To put that into perspective, Famous Brands "only" has 2 614 stores globally. In the USA they are much closer to saturation point, where they won't be able to open new stores but in the global market we are still very far away from that mark.

The brand is also a status symbol, their products are not at the cheap end of the consumables segment. When visiting Bangkok last year, the Starbucks there had queues out of the door even though the cost of a drink was well over 3 times what you would pay 100m down the road. South Africa is another prime example of how powerful the brand is, there were long queues for weeks after opening.

The strong brand and huge store growth means that the stock is not cheap, currently sitting in the low 30s on a P/E basis. The company has stated a goal to grow EPS at a minimum of 15% per annum which means going forward the P/E unwinds rather quickly. As long as the brand commands a premium in the markets that they operate in and particularly those markets where they are rolling out new stores like 'gangbusters', the stock is a buy.


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