Starbucks (SBUX) Raises Its FY25 Goals, Expecting Its Digital Investments To Spur Meaningful Growth
12:43 pm Wednesday, September 14th, 2022
Starbucks (SBUX) shares are steaming today after the company raised its previous FY25 financial targets during its Investor Day yesterday after the close. The global coffee chain also plans to resume its share repurchase program after interim CEO Howard Schultz suspended it amid new sizeable investments into the company.
SBUX’s strategic plan dubbed the “Reinvention Plan,” focuses on accelerating four essential items, comp, store, and margin growth, as well as disciplined capital allocation, through previously announced investments totaling over $1.0 bln. As a result, SBUX raised its FY25 targets, expecting comps of +7-9% annually (up from +4-5), store growth of roughly +7% annually (up from ~6%), adjusted earnings expansion of +15-20% annually (up from +10-12%), and to return around $20 bln to shareholders through dividends and buybacks between FY23 and FY25.
SBUX’s earnings expansion is a notable standout given the over $1 bln in incremental investments the company expects to make in FY23. A significant component of SBUX’s investments was wage and benefits related, so the combination of likely being able to attract and retain talent while also growing earnings is substantial.
Additionally, SBUX continues to expect considerable supply chain disruptions and commodity inflation going forward, meaning that its investments will more than offset these headwinds.
SBUX’s long-term EPS projection would also mean a return to consistent growth after cost inflation dented yr/yr numbers over the past two quarters.
Another highlight is a 3.5 pt bump at the midpoint of SBUX’s previous FY25 comparable store sales forecast. Although SBUX did mention that growth will normalize to a range of 4-6% by FY25, this is still up 2 pts from its prior range.
Overall, SBUX’s raised FY25 financial goals are ambitious. With incoming CEO Laxman Narasimhan, who held various roles at PepsiCo (PEP), focusing on its digital capabilities, stepping in to fill Mr. Schultz’s shoes in October, it is clear that many positive developments are brewing for SBUX in the near term. Whether these developments will lead to SBUX achieving its projections by FY25 has yet to be seen. However, we should have a pretty good view into how SBUX’s Reinvention Plan is shaping out over the next few quarters.
