Starbucks’ Growth Strategy
(Nasdaq: SBUX) reported strong fourth-quarter and fiscal 2003 results yesterday after the bell, with annual revenues jumping 24% to $4. 1 billion and earnings growing 26% to $268. 3 million. Shares are dipping about 2% so far today, presumably because the company’s $0. 17 in Q4 EPS met, rather than beat, expectations. Despite the market’s lukewarm response, there’s much to praise here, and opportunities for more growth abound. The company’s comparable-store sales results were again impressive, and the future of its international expansion looks promising.
Further, Starbucks’ plans for domestic growth are encouraging, thanks to the rollout of more drive-through stores. Starbucks (which I happily own shares of) posted an 8% comparable-store sales gain for the year, marking the 12th year in a row the company’s comps have been 5% or better. It’s projecting 3%-7% comps growth for fiscal 2004 — the same guidance it gave for the just-completed year. Starbucks’ same-store sales success is primarily transaction-driven, meaning that it’s not relying only on higher prices to drive growth.
Starbucks’ Growth Strategy Essay Example
That’s an important factor in the quality of its comps gains. We already know it entered its first quarter upbeat, with same-store sales growth of 9% for the month of October. With the rollout of its famed holiday drinks (don’t come between me and a Gingerbread Latte), and the continued success of the Starbucks card, Q1’s likely to be another winner. Starbucks’ international operations will turn profitable this year, a significant milestone for the company. It will add 350 international locations to its lineup, with 300 of them being licensed stores.
Troubles in Japan haven’t squashed Starbucks’ belief that it can be a welcome part of diverse cultures the world over. The company will continue to partner locally in order to achieve this balance between a consistent Starbucks experience and a locally tailored one. In the U. S. and Canada, Starbucks will add 950 locations this year. About a third of those will be drive-through locations, which have some of the best unit economics of all of Starbucks’ concepts. It’s surprising to me that Starbucks just now seems to be catching on to the fact that drive-throughs can be hugely successful for it.
Yes, it’s contrary to the whole coffeehouse culture the company wants to cultivate, but from the customers’ point of view, the convenience factor is attractive. Starbucks finished the year with 7,225 stores, and as laid out above, plans to add 1,300 new locations globally in fiscal 2004. That’s all while maintaining its excellent comps growth and producing total revenue growth of 20% and earnings growth of at least 20%. Ambitious, to be sure, though Starbucks hasn’t given us a reason to doubt it yet. At 38 times the 2004 estimate of $0. 85, its stock, predictably, isn’t allowing for much doubt, either.