The fact that Starbucks (NASDAQ: SBUX) owns one of the most valuable brands in the world helps explain how the coffee giant doubled its annual revenue since fiscal 2010. The stock has been great for shareholders, too -- up over 100% in the past five years.
Below we'll look at a few useful facts about this retailing business that investors might not know.
Continue Reading Below
Customer traffic is dipping
The key factor in Starbucks' slowing comparable-store sales growth has been customer traffic. The change in the volume of transactions dropped from 6% in 2012 to 1% last year and even slipped into negative territory to start off fiscal 2017.
So far, though, Starbucks has made up for this slowdown by increasing average spending per shopper visit. Customers are responding well to changes like a bulked up breakfast menu that pushed food sales up to 19% of the broader business today from 17% in 2013.
Its highest margin products
Starbucks gets 8% of revenue from its packaged goods segment that includes branded coffee, tea, and single-serve drinks that the company sells through grocery stores and other retailers. That percentage of revenue has held steady over the past few years, but profitability hasn't.
In fact, this division generated $807 million of operating income in fiscal 2016, equating to a margin of 41.8%. That marked a huge improvement over the prior year's 37.8% and helped push overall profitability to a new record.
Starbucks has been one of the best long-term investments on the entire stock market. Investors who purchased 100 shares around the initial public offering in 1992 would have spent about $1,700 for the position. Today, following six 2-for-1 splits and an epic run of capital appreciation, they would own 6,400 shares worth over $370,000.
A digital-friendly audience
With over 25,000 locations spread around the globe, Starbucks is very much a physical retailer. Yet the company's investments in the digital space have kept it on the leading edge in that channel, too.
Starbucks customers are enthusiastically taking up the company's mobile payment offerings, with 25% of all in-store purchases happening through its app. In fact, the new mobile order and pay function has been taken up so quickly by coffee fans that it caused throughput challenges last quarter. Starbucks is working through those and expects its U.S. locations to soon handle 20% or more of peak transaction volume through mobile ordering and payment.
Confident on growth
Starbucks is running behind in both its annual sales and profit growth goals this year. The company still aims to boost its global store base by 50% by 2021, though, with a large portion of those additions slated for the Chinese market.
As for the soft U.S. division, Starbucks executives understand there's a major shift in consumer behavior going on that's sending traffic down across the retailing industry. Yet they are confident that the coffee titan will be one of the few physical retailers to buck an overall downtrend this year.
Starbucks is leaning on initiatives like mobile order and pay, increased rewards marketing, and a broader lunch menu to create what CEO Kevin Johnson says will be a sharp rebound in the second half of the year. Fiscal 2017 should turn out to be "the year of two halves," Johnson predicted in a conference call in May, as he forecast the company would hit its full-year growth targets despite a weak start in the fiscal first quarter.
10 stocks we like better than StarbucksWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Starbucks wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of June 5, 2017