Starbucks (SBUX) shares jumped higher Wednesday after the world's biggest coffee chain boosted its near-term earnings growth forecast and pledged to invest around $3 billion on new technologies and in-store renovations.
Starbucks said it sees earnings growing by between 15% and 20% over the next three years, improving on its prior forecast of a gain of between 10% and 12%, the company said at its investor day presentation in Seattle.
Comparable worldwide sales, Starbucks said, should rise by between 7% and 9% over the 2023 fiscal year, although it referenced the timing of China's post-Covid recovery. Comparable sales growth in the U.S. is also forecast to rise between 7% and 9%, Starbucks said.
The new forecasts are around 3% ahead of the mid-point of its prior forecast, CFO Rachel Ruggeri said, and come amid an overall aim to reach 45,000 stores -- with 2,000 new U.S. additions and 4,500 in China -- by the end of its 2025 fiscal year.
“Starbucks is a growth company, and our accelerated expansion is a direct reflection of the expected returns from our Reinvention plan,” said Ruggeri. “By making strategic and highly targeted investments to drive value for partners, Starbucks will also drive value for customers and shareholders, while managing costs, improving margins, and elevating the Starbucks Experience for all stakeholders.”
Starbucks shares were marked 5.3% higher in early Wednesday trading to change hands at $92.50 each.
Starbucks also said it would invest between $2.5 billion and $3 billion over the next three year updating stores and introducing new technology to help manage the recent rise in digital orders, which now comprise around a quarter of all Starbucks sales.
The move to invest comes amid a challenging time for Starbucks in terms of its employee relations, which has seen 236 of its U.S. stores opt for union membership over the past year.
Starbucks raised its hourly wage threshold to $17 an hour earlier this summer, with higher rates for tenured staff, but excluded those tied to a union from the pay increases.
The wage investments followed a springtime move by Schultz to freeze share buybacks and redirect cash towards investing more into our people and our stores". The interim CEO said it was "only way to create long-term value for all stakeholders."
Schultz said Tuesday that Starbucks would begin returning cash to shareholders next year, with an aim of $20 billion in dividends and buybacks over the following two years.
Rising input costs, however, as well as enhanced pay packages, trimmed Starbuck's second quarter margins, which fell by 400 basis points to 15.9%, partly offsetting improvements in same-store sales. Starbucks posted better-than-expected June quarter revenues of $8.15 billion, with a bottom line of 84 cents per share.
