Friday 29 March 2024
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Starbucks Corporation testing brunch menu in US, slowly brewing its way to China

Revenues of the coffeehouse are expected to rise massively through expansion in China

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Starbucks Corporation (NASDAQ:SBUX) shares are declining 8.85% year-to-date through Monday. In comparison to this, the market index Dow Jones and Nasdaq are rising 5.16% YTD and 4.09% YTD, respectively. However, the shares have started show improvement and have risen approximately 0.66% in the market recently.

This rise in the share price could be attributed to different reasons. The coffee store has a total of 1.47 billion shares outstanding in the market, which trade within 52-week price range of $52.63-64 alongside daily price range of $53.92-54.79.

Its plan of launching a new brunch menu on weekends could be considered as the foremost reason for the rise in its performance. The coffeehouse chain has decided to expand its menu to offer brunch staples such as Belgian waffles, French toast, and quiche. However, these items are not produced in-house but are reheated when the consumer asks for it. It is testing the new menu in about 78 locations and has decided to take advantage of its increase food sales that account for approximately 20% of its total revenues.

Starbucks wants to double its annual food sales by FY19 reaching $4 billion. The testing phase has already resulted in a rise in foot traffic and high tickets on average, and is considered as a good booster of revenues. However, the company has not announced anything regarding the duration of the testing phase or the probability of the roll out to all locations.

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Moreover, it has expanded its product portfolio to include hot and iced tea beverages outside US. These beverages would be available in 6200 stores across China and Asia Pacific region. The tea range, known as Starbucks Teavana, would allow the consumers to enjoy handcrafted tea that have bold flavor profiles. This provides the Seattle-based business with an important opportunity to grow its business as the global tea category is worth approximately $125 billion, marking it as the second most-consumer beverage after water.

Furthermore, its US tea business has already shown immense potential by growing 12% in FY15. Channeled by this growth, the chain aims at further developing its tea business by growing the segment to $3 billion through FY21.

Not only this though, as the $78.86 billion company has seen significant improvement in its store traffic due to its altered rewards program. The results were far better than the management had anticipated and ended up in transformation in traffic composition as well as improvements in average tickets. As a result, the investors of the company have decided to hover on the bullish side of the shares.

The analysts at FactSet Fundamentals have provided with 22 Buy ratings and two Overweight ratings alongside five Hold ratings for the popular US coffeehouse. Furthermore, the one-year average price target has been provided at $65.92, showing upside potential of 20.49% above the closing price of Monday.

Angela Campbell

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