SBUX’s (NASDAQ:SBUX) fiscal second quarter results lend further support to our belief in the company’s wide competitive moat and its long-term, high -single-digit revenue growth outlook. Starbucks’ store base grew 7% this quarter to more than 30,000 stores globally. We expect the company to continue to grow its unit count at a similar rate for the foreseeable future led by underpenetrated markets including China.
Same-store sales grew 3% globally, including 4% growth in the U.S. for the third consecutive quarter, and slightly positive transaction growth in the U.S. for the second quarter in a row. U.S. same-store sales should continue to improve due to the rollout of the Nitro cold beverage platform from just over half of company-operated stores to all by the end of September, new innovations such as the Cloud Macchiato, and continued efforts to engage less frequent customers, including a more accessible loyalty program.
China same-store sales growth of 3% was impressive in light of the intense competitive environment and the rapid expansion of the Starbucks store base, which should be supported in the near-term by the launch of mobile order and pay, and the continued rollout of delivery. Management issued more detailed guidance concerning its overhead cost reduction program, which when combined with higher-than-expected Americas’ segment margins in the quarter, reinforces our view that management’s long-term operating profit margin target will prove to be conservative.
SBUX shares have appreciated 21% year-to-date. The stock currently trades at 26 times forward earnings, in- line with recent historical averages, a level from which we believe prospective returns remain compelling, underpinned by mid-teens EPS growth and robust cash returns to shareholders over the next several years.
From Bill Ackman (Trades, Portfolio)'s first-quarter 2019 Pershing Square shareholder letter.
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