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Unit Growth Is Critical For Starbucks To Increase Revenue

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Jan. 27 2015, Updated 1:04 p.m. ET

Starbucks’s need for unit growth

In the earlier part of this series, we learned that Starbucks Corporation’s (SBUX) same-store sales growth is expected to come in lower at 4.75% in 1Q15. This is a bit concerning since it tells you that Starbucks’s existing store sales are coming in lower year-over-year.

Bear in mind that this is not the only factor that drives revenues. A restaurant can keep adding more restaurants and eventually capture newer markets.

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Starbucks will continue to add units

In the above chart, you can see that Starbucks is expected to add 356 new restaurant units in the first quarter alone. Note that Starbucks operates in several markets, which we’ll discuss in the next part of this series.

Since most of Starbucks’s same-store sales are concerning, unit growth is critical for Starbucks to increase company revenues.

Growth in China and Asia Pacific region

Starbucks (SBUX) has about 21,366 restaurants globally. In the fourth quarter of 2014, the company opened 503 net new restaurants around the world. In the last 12 months alone, Starbucks has added 1,599 net new restaurants, or 8% unit growth.

Over the past 12 months, Starbucks’s highest unit growth in the third quarter was in its China and Asia Pacific segment, with a total of 742 restaurants. Analysts expected the company to add more restaurants in this region.

Several restaurants such as McDonald’s Corporation (MCD), KFC under the umbrella of Yum! Brands (YUM), and Burger King (BKW) are highly aggressive in this market with plans to open several restaurants in these markets. These restaurants are part of the Consumer Discretionary Select Sector SPDR ETF (XLY). Chipotle Mexican Grill (CMG) is focusing heavily on domestic markets.

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