Are Starbucks Lines Too Long?

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Starbucks Corp. (NASDAQ: SBUX) disappointed Wall Street with a lukewarm forecast. It did not say exactly what the cause was but did mention that it has developed tactics for when stores have peak traffic. That will not stop long lines from keeping people in stores waiting for long periods. Starbucks may have become a victim of its own success.

For the full fiscal year:

  • Global comparable store sales increased 3%, comprised of a 3% increase in the Americas segment and a 3% increase in the CAP segment
  • U.S. comp store sales increased 3%; China comp store sales increased 7%, driven by a 5% increase in transactions
  • Consolidated net revenues of $22.4 billion grew 5% versus the prior year. Excluding $412.4 million for the extra week in Q4 FY16, consolidated net revenues grew 7% year over year
  • GAAP operating income of $4.1 billion declined 0.9% compared to the prior year. Non-GAAP operating income grew 7.8% to $4.4 billion
  • GAAP operating margin of 18.5% declined 110 basis points compared to the prior year. Non-GAAP operating margin expanded 10 basis points to 19.7%
  • GAAP Earnings Per Share of $1.97 grew 3.7% versus the prior year. Non-GAAP EPS grew 11.4% to $2.06 per share

Management tried to be upbeat, but there was not enough lipstick for the pig.

As for its long-term targets:

  • Annual global comparable store sales growth of 3% to 5%
  • Annual consolidated net revenue growth in the high single digits
  • Annual earnings per share growth of 12% or greater
  • Annual ROIC of 25% or greater

For a growth stock company, 3% won’t cut it.

And when its stores get crowded, Kevin Johnson, chief executive and president, said:

Food, beverage and digital innovation are bringing customers into our stores at the same time as ongoing operational improvements are enabling us to drive increased throughput – particularly in our busiest stores at peak – and deliver a further elevated Starbucks Experience to our customers.

However, this may not offset surges in customers that cause lines that crowd out many people who would like to stay to drink their coffee and eat, or those about to come into stores.

New York City may not be a perfect test case, but lines there are often too long to wait in. Better to go to the local deli or coffee vendor. If this is a problem in many other high-traffic areas, Starbucks will have trouble building bigger stores.