Starbucks Corporation has announced a set of strategic priorities and corresponding operational initiatives to accelerate growth and create long-term shareholder value.
Starbucks details three strategic priorities to regain revenue and earnings momentum:
– Accelerating growth in the U.S. and China, the company’s targeted long-term growth markets;
– Expanding and leveraging the global reach of the brand through the Global Coffee Alliance; and
– Sharpening the focus on increasing shareholder returns.
“While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” said Kevin Johnson, Starbucks President and CEO.
Johnson added, “We must move faster to address the more rapidly changing preferences and needs of our customers. Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers which serve as the foundation to re-accelerate growth and create long-term shareholder value.”
Accelerating growth in the U.S. and China
– The company’s streamlining initiatives will enable greater agility in adapting more quickly to changes in consumer preferences. This includes accelerating product innovation around core beverages while leveraging the growing tea and refreshment category, as well as consumer behavior trends towards health and wellness.
– Starbucks is optimizing its U.S. store portfolio at a more rapid pace in FY19, including shifting new company-operated store growth to underpenetrated markets, slowing licensed store growth, and increasing the closure of underperforming company-operated stores in its most densely penetrated markets to approximately 150 in FY19 from a historical average of up to 50 annually. In FY19, this will result in a slightly lower growth rate in net new company-operated stores.
– Starbucks is actively expanding the breadth and depth of digital relationships with current and new customers. The company has added 5 million new digitally registered customers since April 2018 and 2 million active Starbucks Rewards members year-over-year to 15 million, up 13 percent from the previous year.
– In FY19, the company expects newer digital initiatives to contribute one to two points of comp growth in the U.S., supported by a redesigned Starbucks Rewards program that provides customers more choice around redemptions and payment, as well as expanded personalization capabilities for customers that have a digital relationship with the company.
Expanding and leveraging the global reach of the brand
Starbucks continues to make progress toward closure of the Global Coffee Alliance transaction with Nestlé to accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods (CPG) and Foodservice, adding opportunity for another 5 million points of presence in 189 countries.
Sharpening focus on profitability and increasing shareholder returns
– With the execution of the company’s strategic priorities expected to improve the return profile of the business, the company now expects to return approximately US $25 billion in cash to shareholders in the form of share buybacks and dividends through FY20. This represents a US $10 billion increase from the cash return target announced on November 2, 2017.
– Starbucks is intensifying its focus on G&A efficiency, with plans to partner with an external consultant to drive speed and leverage best practices in identifying areas of opportunity. The company expects to provide more detailed plans in conjunction with the company’s Q3 FY18 earnings call.
– The company is actively exploring strategic options to license company-operated stores in other appropriate markets.
– In support of an accelerated return of cash to shareholders, the Board of Directors approved a 20 percent increase in the company’s regular quarterly dividend and declared a cash dividend of US $0.36 per share payable on August 24, 2018, to shareholders of record as of August 9, 2018. This represents the 8th annual increase in the company’s regular quarterly dividend.
The company now anticipates 1 percent growth in comparable store sales globally in Q3 FY18