October 2, 2018

SBUX – Market expectations are for record-high Uniform ROA, but management has concerns about expansion and branding


  • Starbucks Corporation (SBUX:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Earnings, with a 27.1x UAFRS-based P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about their ability to expand, and the strength of the Starbucks brand globally
  • Specifically, management may lack confidence in their ability to expand into new cities, and may be concerned that 80% of their portfolio is from drive-through customers. Additionally, they may lack confidence in their ability to maintain expanded revenue levels and may be exaggerating the rise of the middle class in China. Moreover, they are confident in their expectation that operating margin will fall moderately compared to last year, due to their consolidation in East China, and may be exaggerating the momentum they gained from their spring and summer marketing campaign. Lastly, they may be exaggerating the underlying strength of the Starbucks brand around the world and may lack confidence in their ability to connect with their customers in China
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