<\/p>\n
Starbucks (SBUX) just told investors that the difficult phase of its turnaround is over. <\/p>\n
On Sept. 10, two years after Brian Niccol took over as chief executive, he said the company had achieved its goal. “Starbucks is back,” he told CNBC.<\/p>\n
Niccol’s performance at Chipotle, where he led the recovery from the chain’s food-safety crises after taking over in 2018, earned him the benefit of doubt. <\/p>\n
Now he is counting on the cafes themselves to bring coffee drinkers back.<\/p>\n
Starbucks’ $1 billion plan to make its cafes worth staying in<\/p>\n
The next phase is a physical makeover. <\/p>\n
Starbucks will spend about $1 billion to remodel up to 9,000 company-operated locations in North America, Investing.com reported.<\/p>\n
Each redo costs roughly $150,000 and is set to be finished overnight so stores stay open.<\/p>\n
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The updates make the cafes more comfortable. They include: 25,000 new chairs, softer lighting, rugs, plants, and more power outlets. <\/p>\n
Starbucks calls them “uplifts,” and the point is to make its shops somewhere people sit and relax instead of simply quick pickup counters.<\/p>\n
Niccol is also stepping away from mobile-order-only stores in major cities and moving that money into full cafes.<\/p>\n
Starbucks plans to remodel up to 9,000 North American cafes to encourage customers to sit and stay.<\/p>\n
bgwalker \/ Getty Images<\/p>\n
How the turnaround shows up in Starbucks sales<\/p>\n
Starbucks earns most of its money selling coffee and food at company-run cafes, with added income from licensed stores and packaged products sold in groceries.<\/p>\n
Investors’ primary focus is on same-store sales, which track sales at shops open for 13 months or longer.<\/p>\n
In the fiscal third quarter, global same-store sales rose 7.9%, Starbucks reported. The increase was mainly due to more visits and higher spending on each order. <\/p>\n
Adjusted earnings beat expectations by close to 31%, and the company’s management lifted its full-year guidance to a range of $2.55 to $2.65 a share.<\/p>\n
What drove the quarter<\/p>\n
Transactions climbed 4.2%, so more customers are actually showing up.<\/p>\n
The average amount spent on each order rose 3.5%.<\/p>\n
U.S. same-store sales have now grown for four straight quarters.<\/p>\n
Why Starbucks’ revenue fell, even as sales grew<\/p>\n
Total revenue came in slightly below last year, even with strong sales at existing stores.<\/p>\n
The reason is China. In April, Starbucks closed a joint venture with Boyu Capital that handed the firm 60% of its China stores and left Starbucks with 40%.<\/p>\n
Related: 49-year-old beloved pizza dining chain quietly closes locations<\/p>\n
Starbucks no longer counts all the sales of those stores as its own, since it no longer owns most of them, according to its SEC filing.<\/p>\n
The company said its operating margin grew after the change, and investors now want that improvement to continue, Reuters reported.<\/p>\n
What the makeover means for Starbucks stock investors<\/p>\n
The upgrades mean spending will stay high for several quarters while thousands of stores get remodeled.<\/p>\n
Starbucks is also investing about $500 million in service training and new ordering technology to reduce customer wait time, QSR reported.<\/p>\n
Rivals such as McDonald’s and Dunkin’ are cutting prices to draw customers, while Niccol is protecting Starbucks’ higher prices by selling a better experience instead.<\/p>\n
Wall Street’s average 12-month price target sits at $119, which is above the stock’s recent $98.74 close.<\/p>\n
What still needs to happen<\/p>\n
About 1,500 uplifts planned to be completed by the end of September out of the total 9,000.<\/p>\n
Cafe traffic has to keep climbing to justify the spending.<\/p>\n
International growth, including the reshaped China business, must hold up.<\/p>\n
The bottom line on Starbucks stock<\/p>\n
The old question on investors’ minds about the stock was whether Starbucks could fix itself. Niccol says that answer is settled.<\/p>\n
The new question is simpler. With the stock already up about 30% since his hiring, how much of the comeback is already priced in?<\/p>\n
For now, higher traffic and a barely started uplift give SBUX stability and room to grow.<\/p>\n
Related: Barbecue chain closed more restaurants than it admitted<\/p>\n
#Starbucks #CEO #reveals #thinks #customers #coming<\/p>\n","protected":false},"excerpt":{"rendered":"
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