Starbucks (ticker: SBUX) shares were skyrocketing after the coffee chain’s highly anticipated investor day on Tuesday when the company shed light on its ambitious new restructuring proposal.
This being the company’s first investor day since 2020, it outdid itself with its three-year “reinvention plan” to boost profit margins and accelerate long-term growth. Key strategies to be implemented include restructuring the workflow within Starbucks coffee shops, taking advantage of new fads such as Genz’s affinity to cold brew, and expanding its reach to key international markets. The company also announced its planned investment in technology and automation, as well as in labor relations, in a bid to manage unionization efforts at its stores.
Investors seemed to take to the ideas, as the stock gained 6%, landing at $93.07, thereby reversing earlier losses.
“Starbucks’ plan is capitalizing on opportunities that have been there for a while,” said Kevin Burke, managing director at Citizens Capital Markets. “The plan is well thought out, and the components for success will be to harvest gains in technology that they are taking very seriously.”
Wall Street also seemed smitten with the stock, especially after the company’s long-term guidance release. The company announced its forecast of adjusted earnings will grow between 15% and 20% annually through fiscal 2025. Starbucks said it expects global revenue growth within the range of 10% to 12% annually from fiscal 2023 to 2025, an increase from a previous range of 8% to 10%.
Comparable-store sales growth will most likely range between 7% and 9% annually during that same time period, while margin growth is expected to see continuous improvements, executives added.
Despite this good news, a few analysts didn’t seem so readily impressed. Stifel analyst Chris O’Cull maintained a Hold rating on the stock, citing that the company’s uncertain margin outlook might further drag the shares down.
In addition, China’s recovery is a crucial driver for higher guidance. The company plans to open a new stores in China every nine hours for the next three years. O’Cull doubts the company’s ability to achieve this ambitious goal, given the country’s potential for severe future lockdowns.
“We are not confident there is much upside to the revised estimates, so we believe staying on the sidelines pending better margin visibility is prudent,” O’Cull wrote.
Citi’s John Towe also chose to maintain his Hold rating, saying that although the core building blocks are there, they haven’t been “compellingly tied back to guidance” and may inadvertently be setting investors up for overly aggressive targets.
Even a few stock enthusiasts found themselves questioning whether the company’s guidance was too good to be true. “Starbucks has set a rather high bar for itself, and although we believe it is achievable given brand strength and new management capabilities, we still believe skepticism persists about the challenges of accelerating growth — in particular at a time of macro uncertainty,” wrote BofA’s Sara Senatore, who has a Buy rating on the stock.
With that said, the company looks like its own way further up, and barring any major china-related catastrophes; its stock might still be a keeper.
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