Via online business online marketing online business opportunities Sleepy Starbucks Is Set To Give Investors A Nice Jolt

Via  online business opportunity  online marketing  online business opportunity opportunities Sleepy Starbucks Is Set To Give Investors A Nice Jolt

Via online business online marketing online business opportunities

Ever since it transitioned from a coffee bean seller to a famous coffeehouse,Starbucks (SBUX)has managed to maintain a competitive edge by expanding its footprint and by being a leader in product innovation and making their shops a ‘hangout’ of sorts.

The company has constantly launched new drinks and products to retain its loyal customers. However, some of SBUX’s initiatives have failed in the recent past, raising questions about its ability to maintain a high growth trajectory.

For example, the once popular Starbucks’ blended Frappuccino beverages and all its wonderful calories, are no longer popular with customers and t he company’s mobile app has created in-store traffic jams near the pickup areas within stores.

In addition, SBUX has reported stagnant store traffic at established U.S. cafes due to intense competition from rivals that include upscale coffee houses, fast-food chains and convenience stores. Same-store sales have declined in all regions since peaking in 2015. In June 2018, SBUX’s stock plunged by over 9% after the company reported that its same-store sales growth for 3Q2018 had increased just 1% – well short of the 3% forecasted growth rate.

Source: Y Charts

The slowdown of comparable sales growth led many investors to believe that the stock wouldn’t rebound – not even with a shot of it’s own java. The stock decline renewed fears about SBUX’s growth and the bearish outlook led management to adopt a three-pronged strategy for the shot of caffeine that shareholders were looking for.

The strategy comprises three key objectives, penetrating the Chinese market while strengthening its position in the US market, leveraging the Global Coffee Alliance, and streamlining operations.

Via online business online marketing online business opportunitiesDeveloping the Chinese market

As a part of its first strategic initiative, the company is increasingly focusing on the Chinese market. While it has already established a presence in several key cities the acquisition of full control of their East China joint venture is a clear signal of the company’s commitment to the country. It recently paid $1.3 billion for the rest of the JV it didn’t already own, taking control of 1,300 cafes with the plan to open another 2000 more stores by 2021.

The company is confident about its growth prospects and management feels it has an advantage over competitors because of its first-mover advantage and the fact it has been operating in China since 1999. From a branding point of view, SBUX has not only managed to establish its brand identity in a tea-loving nation but has also succeeded in winning a 58.6% share of the market.

During FY 2018, SBUX established 585 new stores and entered 17 new cities. In the 4 th quarter alone, it opened 139 stores and entered five new cities. In addition to establishing its stores in East China, SBUX has now opened 3,500 stores across 148 cities in Mainland China.

In addition, the initiatives launched in the fourth quarter have played an important role in differentiating its offerings. The company plans to strengthen and defend its market position by launching new product varieties like the unique ‘Coffee Meets Ice Cream’ platform which is being offered in more than 1,000 stores across China.

In Q4, SBUX’s comparable store sales in China increased by 1%, an improvement over the sales growth of -2% even if not spectacular. In fact, when it failed to reach its targeted sales growth in Q3, the company decided to build a successful channel partner program with Alibaba, the Chinese eCommerce company that offers a number of electronic on-demand platforms.

Via online business online marketing online business opportunitiesPartnership with Alibaba

SBUX’s partnership with Alibaba will open up alternative delivery channels and reach a broader Chinese market. The company will be capitalizing on the alliance by selling its products through eCommerce food delivery platforms, Tmall ,Taobao and mobile and online payment platform Alipay. By selling its products through these Alibaba-owned delivery channels, SBUX will also improve the quality and the timeliness of its service delivery. Previously, SBUX had no control over its food delivery channels because it relied on third-party delivery partners. Through its alliance with Alibaba, SBUX can have greater control over delivery channels and it’s delivery partner will also adhering to all of SBUX quality and safety standards.

SBUX has begun to test the online delivery services in Beijing and Shanghai by usingEle.meonline platform. As a part of this service, SBUX’s customers will purchase products online’s registered riders will make sure that the orders are delivered within half an hour.

SBUX will also setup physical order fulfilment centers inside Alibaba’s Hema cashless supermarkets in Shanghai and Hangzhou. Currently, SBUX’s online delivery initiative is being tested in only 150 stores but will be expanding to more than 2000 stores.

Source: Starbucks Reports Q4 and Full Year Fiscal 2018 Results

Growth strategy for the US Market

SBUX is optimistic about achieving growth in the domestic US market despite recent lagging performance . The company will be introducing a range of beverages like ‘Nitro Cold Brew’ and ‘Refreshers’. The ‘Nitro Cold Brew’ drink is currently being offered in about 700 stores and it is expected to be served in 2,800 stores by the end of the fiscal year. The popularity of the new product offerings should help SBUX make up for the low demand of its blended beverages.

SBUX is also stepping up its efforts to achieve operational excellence within its stores and to pass on the savings to the customer. Through the end of FY 2019, the company plans to reduce in-store administrative tasks by 50%. In Q4, the company cut down one-and-a-half hours of administrative tasks per day – allowing staff to focus on more on value-added activities.

The company is also expanding its digital reach and has achieved double-digit growth in active rewards memberships year-over-year. Digitally registered customers grew from 6 million at the end of Q3 to 10 million at the end of Q4. The customers enrolled in the rewards program continue to drive nearly 40% of the business in the U.S. with ‘Mobile Order and Pay’ contributing to 14% of all sales transactions.

Lastly, Starbucks’s strategy for the U.S. market is also poised to benefit from its global alliance with Nestlé. The alliance underlines SBUX’s efforts to improve its market share in the U.S..

Via online business online marketing online business opportunitiesGlobal Coffee Alliance with Nestlé

SBUX’s second strategic initiative is to expand and leverage the Starbucks brand through the Global Coffee Alliance with Nestlé. This initiative is a part of SBUX’s broader strategy to build a robust channel partner ecosystem. For SBUX, the goal is to enhance its product offerings for coffee lovers globally. Through the alliance, the two companies will collaborate with each other to expand in domestic and global markets. Starbucks benefits from Nestle’s global operations and distribution network, while Nestle is able to strengthen its competitive position in the North American premium and branded coffee segment.

SBUX will leverage Nestlé’s distribution channels for selling its coffee beans and blends through supermarkets and other food stores around the world. This will allow SBUX coffee products to reach restaurants and catering operations across the globe., giving the company a foray into the grocery and foodservice sector.

The SBUX business covered by the deal will generate around $2bn in annual sales and it contribute 9% of total SBUX’s revenue. Nestlé is paying Starbucks $7.15bn upfront in cash for the perpetual rights to market.

During the Q4 2018 earnings conference call, John Culver, the Group President for channel development, mentioned that the deal with Nestlé is expected to be accretive in FY2020.

Via online business online marketing online business opportunitiesStreamlining Operations

SBUX’s third strategic priority is to streamline its operations and to lower the cost of operations for increasing shareholder returns. Over the past year, the company’s efforts to streamline the company has focused on key areas of retail market alignment and business simplification.

The retail market alignment has already been evidenced by the company’s purchase of its East China joint venture as well as its exit from smaller markets where it underperformed. It has sold its Tazo tea brand to Unilever and by closed the Teavana specialty retail stores. In addition, it has transitioned its e-commerce business to channel partners while simplifying its SKU structure. More recently, the company has decided to automate inventory tracking and replenishment systems in its stores.

Kevin Johnson, the CEO of Starbucks, has commented that the company’s initiatives to streamline the company operations have freed up capital, which will be utilized to return $25 billion to shareholders through FY2020. About $9 billion has already been returned to shareholders in FY2018 alone.

Via online business online marketing online business opportunitiesA target for activist investors?

SBUX’s three-pronged strategy has proved instrumental in making the company maintain its competitive edge. Analysts who had expressed concerns about SBUX’s falling stock price are now bullish about the stock, particularly after the company delivered better-than-expected sales figures in the domestic market.

The stock has bounced back by 8.5% since the Q4 2018 results have been reported. It is also important to note that SBUX’s stock rose by 5% in October 2018 when Bill Ackman, an activist investor and hedge fund manager, revealed that his Pershing Square Capital Management owns 15.2 million shares of the company. The investor’s stake is worth $900 million. Ackman believes that SBUX’s earnings in China will grow from 13% to 17% of the company’s earnings by 2022 and the company has a good opportunity to reinvigorate the U.S. market.

Ackman is well-known for his high-pressure tactics to influence the strategies of the companies that he invests in. However, his current position appears to be passive as the investor has been supportive of management’s strategic initiatives. Terming SBUX’s strategic initiatives as ‘encouraging’, Ackman has suggested that the company’s current challenges are manageable with an appropriate business strategy and that the company’s stock price can double if same-store sales improve with valuation reverting to historical levels.

How long Ackman will remain silently on the sideline is anyone’s guess but just knowing he is ‘around’ might be the extra incentive management needs to right the ship. The stock is now up 20% in the last three months and now the problem is whether it has spiked too far too fast.

Via online business online marketing online business opportunities Q4 Results

SBUX reported strong results in Q4 with consolidated net revenues increasing by 11.7% over the previous year. Additionally, the company’s GAAP Earnings Per Share grew by 4% over the previous year and the company has delivered improved sequential results in both Americas and the China / Asia Pacific regions.

Source: Starbucks Reports Q4 and Full Year Fiscal 2018 Results

It opened 604 net new stores and currently operates 29,324 stores across 78 markets. Meanwhile, $3.6 billion was returned to shareholders through a combination of dividends and share repurchases.

Source: Starbucks Reports Q4 and Full Year Fiscal 2018 Results

For the full year, 2018, the company’s global comparable store sales increased by 2% and its consolidated net revenues increased by 10% in comparison to the previous year. In 2018, the GAAP earnings per share increase by 64% over the previous year.

Source: Starbucks Reports Q4 and Full Year Fiscal 2018 Results

For fiscal 2019, SBUX expects to add about 2100 net new stores globally. Additionally, the company expects global comparable store sales growth near the lower end of the 3% to 5% range. It projects that it will achieve consolidated revenue growth of 5% to 7%. This includes a 2% headwind related to streamline-driven activities.

Adjusted EPS is expected to increase from 8% to 10% and it will fall in the range from $2.61 to $2.66. Beyond 2020, SBUX will begin to cash in on its strategic alliance with Nestlé in addition to the benefits delivered by its partnership with Alibaba.

Patient investors can look to 2020 as a critical year in which SBUX stock could potentially spike. But just looking out 12 months, and using a $2.63 estimate for EPS, we still think the stock has compelling value. If we apply a 3 year average PE multiple of 27.8 to EPS estimates we get a stock price of $73. That’s a 20% return when you add in the dividend.

After the additional 5% decline in the last week, we believe there is an even more compelling reason to buy. The dividend yield of 2% isn’t a screamer but at a payout ratio of 38% there is a good chance there will be a dividend boost – not likely in the next few quarters but certainly in the latter half of 2019. We expect it will probably be higher than the $0.06 boost to the dividend earlier this year.

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Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in SBUX over the next 72 hours.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure:Disclaimer: This article is meant to identify an idea for further research and analysis and should not be taken as a recommendation to invest. It does not provide individualized advice or recommendations for any specific reader. Also note that we may not cover all relevant risks related to the ideas presented in this article. Readers should conduct their own due diligence and carefully consider their own investment objectives, risk tolerance, time horizon, tax situation, liquidity needs, and concentration levels, or contact their advisor to determine if any ideas presented here are appropriate for their unique circumstances.

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