Signs of Encouragement From Undervalued Starbucks
We're planning to raise our fair value estimate after comparable-store sales reversal in U.S. and China.
In the U.S., the 4% comp was driven by a 5% increase in average ticket (2 points of pricing and the rest attributed to mix benefits from its cold beverage platform, which also helped to reverse recent weakness in the afternoon daypart) offset by a 1% decrease in transactions, which was an improvement of 2 points versus the 3% decline in the third quarter. China was a menu innovation story as the 1% increase in comps was aided by coffee plus ice cream products, cold foam, and holiday food items. We see a number of levers in both regions that should keep the company aligned with its fiscal 2019 comp guidance for the low end of its longer-term 3%-5% range, including digital engagement (Starbucks Rewards members jumped 15% to 15.3 million in the U.S. during a typically slower recruitment quarter), delivery (including new test markets in the U.S. and the partnership with Alibaba in China), and new store layouts (including drive-thru formats in the U.S. and Star Kitchen locations in Alibaba's Hema stores).
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