Starbucks’s (SBUX) SSSG (same-store sales growth) in its second major market, China, declined 2.0% in its latest quarter, which ended on July 1. The company’s management blamed the stricter regulations and the crackdown on unauthorized third-party delivery services for the fall. So, to overcome its delivery issues, the company has partnered with Alibaba (BABA) to start delivery services in September 2018.
According to the partnership, which was announced on August 2, Starbucks and Ele.me, Alibaba’s food delivery platform, will start delivery service in 150 restaurants located in Beijing and Shanghai in September 2018 and expand the service to 2,000 restaurants by the end of the year. Also, Starbucks will establish its “Delivery Kitchens” at Alibaba’s Hema supermarkets to boost its delivery capacity and speed. These initiatives appear to have increased investors’ confidence, leading to a rise in the company’s stock price. As of August 28, Starbucks (SBUX) was trading at $53.05, which represents a rise of 3.1% since the announcement of its fiscal third-quarter earnings on July 26.
Starbucks has been struggling with its sales in the last few quarters, which has been putting pressure on the company’s stock price. In 2017, the company’s stock price rose only 3.4%, while its stock price has declined by 7.6% since the beginning of 2018. In comparison, peers Dunkin’ Brands (DNKN) and McDonald’s (MCD) have returned 11.8% and -6.1% year-to-date, respectively. The broader comparative index, the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests 8.2% of its holdings in restaurant and travel companies, has returned 17.4% during the same period.
In this series, we’ll look at analysts’ revenue and EPS expectations for Starbucks in the next four quarters and management’s guidance for fiscal 2018. We’ll end this series by looking at the company’s valuation multiple and analysts’ recommendations. First, let’s look at analysts’ revenue expectations for Starbucks for the next four quarters.