Coffee Hits the Spot as Starbucks Revenue Jumps


starbucks

Profits jumped at high street coffee maestro Starbucks (NASDAQ:SBUX) with adjusted revenue for the company hitting a new record for the final quarter of the year.

The latest quarterly results showed revenue at the Seattle based coffee chain jump $5.7 billion. Operating profit came in at $4.2 billion, up 16% making this the most profitable year in the company’s history.

“Starbucks record Q4 and fiscal 2016 financial and operating results in the face of ongoing economic, consumer and geopolitical headwinds, and the significant investments we continue to make in our people and our business, once again demonstrate the power, relevance and strength of the Starbucks business and brand” commented chief executive Howard Schultz.

Concentration on developing the brand of the company has continued strongly. It has continued to roll out its latest ‘roastery’ concepts stores in several key locations. Further planned openings include New York, Tokyo and Shanghai. The company aims to have up to 30 of these high end concept stores opened in major cities over the next few years.

Starbucks recently announced ambitious expansion plans for its operations in China. The company has plans to double the amount of stores from 2500 to 5000 by 2021 . This is in a market where it already has a 74 per cent market share. Profit from the Asia region increased by 48% on the back of the opening of over 100 new stores over the quarter.

Starbucks CEO has commented that the potential of the market one day see China surpass the US as the chains largest market.

The expansion into China and key Asian markets comes at a time when sales for the group have been slowing at existing stores. Overall sales rose by 4% over the quarter. This is somewhat short of analyst predictions of 4.9%. The company blamed tough high street retail conditions and a change in consumer behavior for the miss.

Shares in Starbucks which has closed down in Thursdays trading session moved 6% higher after hours following the announcement.

starbucks share price

Outlook

Starbucks shares have not had the best run over the past year and are well off of the high of $61.79 set in February.

The coffee shop market has boomed over recent years but there are signs in developed markets, that the sector could be reaching saturation point. This is why the company’s most recent announcement to gear up its operations in China is likely to be welcome news for investors.

However while the rate of expansion into these markets may be fast, the transition to profitability from these new shops won’t be instant. Therefore at the current price traders will do well to take a cautious view on the stock.