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Starbucks Corp. SBUX, +0.95% is building on its line of cold beverages, which the global coffee company says has already driven $1 billion in sales over the last three years.
“Cold has grown by nearly 45% the past four years,” said Rosalind Brewer, Starbucks’ chief operating officer, during a Wednesday investor event, according to a FactSet transcript. “So, for Starbucks, cold is hot.”
For fiscal year 2020, Starbucks recorded total revenue of $23.52 billion.
In spring 2021, Starbucks will launch its latest cold drink, shaken ice espresso, made with brown sugar and oat milk.
Oat milk and other plant-based options will also be a menu focus for the company going forward.
“Millennials and Gen Zers under 30 are two times more likely to drink cold coffee,” Brewer said. “And just like the rest of our cold platform, we believe this new drink will resonate all year across all day parts.”
Starbucks is guiding for fiscal 2021 adjusted earnings per share of $2.70 to $2.90 and “continued recovery” from the effects of the pandemic.
The reaction to Starbucks’ presentation from investors and analysts has been upbeat. Starbucks shares were up 4.2% in Thursday trading. And RBC Capital Markets analysts say they walked away from the event “incrementally more positive on Starbucks from both ’21 recovery and long-term perspectives.”
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RBC rates Starbucks shares outperform and analyst Christopher Carril raised his price target to $115 from $109.
“[W]e believe the recovery is tracking at least on pace with management’s prior expectations (first detailed in July), despite more recent COVID-related headwinds,” RBC said. “While there are numerous growth opportunities across the consumer investing landscape, Starbucks is among only a handful of $100 billion-plus market cap consumer companies expected to drive double-digit EPS growth in FY22E and beyond.”
Other analysts attribute Starbucks’ recovery and growth to its loyalty program, which the company says has 19.3 million 90-day active members in the U.S. and 13.5 million in China. Starbucks Rewards members generate nearly half of the company’s revenue.
Starbucks says it will use its artificial intelligence initiative DeepBrew to further personalize the digital experience for members.
KeyBanc Capital Markets notes that the Starbucks loyalty program has added members even as guest counts have declined due to the pandemic.
“We believe the MSR [My Starbucks Rewards] membership base presents a large opportunity for Starbucks to engage with its highest-frequency customers as it continues on its recovery path,” analysts wrote.
KeyBanc rates Starbucks shares as sector weight.
Starbucks is also focused on its footprint, both in the U.S. and abroad. Not only is the company adding stores – the company expects to have 55,000 stores by 2030, up from 33,000 around the world now – it’s mixing up the store formats, including drive thru and curbside pickup.
China will figure prominently in Starbucks’ plans, with 600 new stores in the country planned for next year. Ten percent of those cafes will be Starbucks Now locations, stores catering to customers using mobile order & pay and Starbucks Delivers.
“Citing the pandemic’s acceleration of secular consumer trends, Starbucks plans to shift the physical store base to provide greater access to more convenient occasions for consumers, increasing the proportion of high-volume/high-margin drive-thru locations (roughly 80% of the new store development portfolio) as well as introducing Pickup formats in more densely populated areas,” wrote Stifel analysts.
“Unlike other restaurant chains, Starbucks can generate significant sales levels without traditional kitchen investments, and most of its sales coming from higher-margin beverages. We believe this is a point of differentiation that is sometimes overlooked by the market.”
Stifel rates Starbucks stock a buy with a $115 price target, up from $108.
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While Quo Vadis says Starbucks is “among the best consumer brands and most compelling global growth stories out there,” John Zolidis, president of the group, doesn’t think Starbucks has the ability to see as far into the future as its guidance indicates.
For example, Starbucks is forecasting global comp growth of 4% to 5% in fiscal 2023 and 2024.
“We believe Starbucks has outlined a credible plan to achieve unit growth, take market share, and expand both margins and ROIC,” Zolidis wrote. “We think Starbucks is going to do great. However, the path from here to there will get harder if Starbucks is forced to start walking down its outlook in the near-term the risk of which appears elevated given the highly-specific multi-year outlook provided.”
Starbucks shares have gained 17.2% over the past year outpacing the S&P 500 index SPX, +0.91% which is up 16.5% for the period.
