What to Expect from Starbucks’ Same-Store Sales Growth in 4Q15

Previously, we learned that most of Starbucks’ revenue growth comes from the Americas segment and the CAP (China/Asia-Pacific) segment. Same-store sales growth is one of the key revenue drivers for a restaurant company like Starbucks (SBUX), McDonald’s (MCD), Darden Restaurants (DRI), and Texas Roadhouse (TXRH). Currently, Starbucks forms about 2.3% of the iShares Global Consumer Discretionary (RXI).

• In the above chart, you can see that until 1Q14 the same-store sales growth was mainly driven by growth in the transactions.
• This means that more people visited Starbucks each year and made purchases.
• The composition of the same-store sales growth started shifting to ticket growth or average check after 1Q14.
• This means that customers who visited Starbucks spent more on their orders.
• The company introduced several items that customers could order along with their beverages. These include the La Boulange bakery items like bread, muffins, and croissants as well as breakfast sandwiches.

• While average check may still continue to dominate same-store sales growth, traffic could go higher during the quarter.
• This is because of the introduction of Mobile Order and Pay. It allows customers to order using their phones. Then, they pick up their orders later.
• This helps customers avoid the long lines that can often be seen at Starbucks.

• Compared to the Americas segment, the CAP segment’s same-store sales growth is primarily driven by traffic growth as opposed to the ticket.
• Restaurants like Starbucks, KFC (Kentucky Fried Chicken) under the umbrella of Yum! Brands (YUM), and McDonald’s are a part of the consumer discretionary spending. They’re impacted by consumer sentiments.
• While Yum! Brands reported a terrible quarter in China, McDonald’s had a solid quarter in the region.
• This is why Starbucks’ upcoming earnings are evoking mixed emotions.

The same-store sales growth in the CAP segment will likely continue to be driven by traffic. Starbucks is still adding units as new customers try Starbucks. This brings us to unit growth. We’ll discuss this in more detail in the next part of this series.