Starbucks recently reported underwhelming same-store sales figures. Though same-store sales are growing, the rate at which they are expanding is slower than expected. Add in the fact that the coffee chain’s mall locations are experiencing a lull in sales, and one would think it is time to sell the stock or even short it.
However, these are minor issues that will be resolved in the near future. The coffee enterprise will continue its winning ways in the long run – herey’s why.
Slumping Same-Store Sales: The Worst is Over
Starbucks has reported disappointing same-store sales for two consecutive quarters, but new CEO Kevin Johnson maintains better times are ahead.
Comp sales increased sequentially from January to March. The company’s most significant promotional season, Frappuccino happy hour, is poised to catalyze sales in the upcoming quarter.
Consider the exact figures reported: 3 percent same-store sales growth. This means Starbucks is selling more coffee and other tasty treats in its stores compared to previous months and quarters. Part of the alleged problem is that an abundance of customers are “bottlenecking” Starbucks stores.
Now that is the type of challenge other coffee peddlers envy. When considering that Starbucks’ second quarter earnings were right on target with analysts’ estimates and the future looks quite rosy.
Starbucks is on the Upswing
Starbucks is on the tip of tongues across the world thanks to its incredibly successful Unicorn Frappucino. The colorful drink went viral within hours of becoming available, and inspired countless people to head to a nearby Starbucks location.
More importantly, the product generated a massive media buzz. The all-important millennial age cohort is especially fanatical about the coffee giant thanks to its creative drinks, free wireless Internet and laid-back vibe.
Vice-Like Grip on Millennials
Millennials now outnumber baby boomers in the United States. Step foot inside a Starbucks and take note of the clientele. Millennials are hooked on Starbucks’ drinks and treats. Some would even argue they are drug addicts of sorts.
The fact that Starbucks has legions of youngsters flocking to its stores for their caffeine fix is excellent news for long-term growth. As noted above, Starbucks is working on resolving its “bottlenecking” challenge.
Part of Starbucks’ appeal is that the company continues to innovate. Order a decaf coffee in the late afternoon or evening and you won’t be turned away. If fresh decaf coffee is unavailable, Starbucks baristas will get right to work on concocting a delicious decaf Americano made in a fashion similar to espresso.
Johnson has indicated his company will bring one or several “entirely new” drinks to Happy Hour in 2017. He vows these creations will be better than the uber-popular Unicorn Frappucino that has customers lining up out the door.
The Mall Issue
Starbucks has opened its fair share of coffee shops in malls and near malls. As most people know, malls are slowly fading away due to the rise of shopping on the Internet from the comfort of home. Starbucks readily admits some of its mall stores have slowed profit growth, yet company executives have also stated the company is “largely unaffected” by reduced mall traffic.
Starbucks locations in struggling malls will be subjected to a comprehensive review process to determine their viability. However, it is important to note that mall locations have actually added a point to the coffee giant’s comp.
Continued Expansion
Starbucks is opening stores around the globe at quite a rapid pace, focusing on coveted markets in China and other places. The company cut the ribbon on hundreds of new stores in 2016, catalyzing revenue by double digits. It is clear this is still a growing company working out the kinks to meet an ever-rising consumer demand.
Take a close look at the numbers, and you will find the coffee giant is gaining a larger portion of market share with each passing year. Sales at stores open in excess of a year grew five percent on a year-over-year basis. Earnings per share jumped 17 percent as a result of increased profit margins.
Starbucks is on the brink of reaching a “critical mass” that sends its stock soaring across posterity. Company-savvy investors will buy and hold for a decade or longer.
It is time to hop on board with Starbucks. The sky is the limit.
Regards,
Ethan Warrick
Editor
Wealth Authority
