Rising mortgage costs and the rental housing shortage have combined to create strong demand for spare room accommodation
4 min
Investors got a long-awaited glimpse of Starbucks’ future under CEO Laxman Narasimhan Thursday, when the company unveiled an updated strategic plan.
The so-called “Triple-Shot Reinvention Strategy,” which the company announced at an investor event in New York, comes nearly eight months after Narasimhan took the company’s reins from former CEO Howard Schultz.
The event was the first time many investors heard from Narasimhan about his long-term vision for the company. Those who feared a drastic about-face now that Schultz has stepped away can rest easy: Narasimhan describes his new plan as relying “on the foundation” of the reinvention plan laid out by Schultz in September 2022.
“This huge focus on my part, on my team’s part, over the last year to build the foundations—that is continuing,” Narasimhan said in an interview with Barron’s. “All we’ve done here is to say ‘Hey, there’s further stuff [to do] about the store, there are things to do in innovation that we can bring in.’”
Triple-Shot will focus on three areas intended to propel the next stage of the company: improving the store experience, scaling its digital capabilities, and expanding its global footprint. The plan also seeks to increase efficiency and reinvest in its employees.
The company believes the strategy paves the way for long-term revenue growth of 10% or greater, and earnings per share growth of 15% or greater. Long-term guidance issued in 2022 called for revenue to grow between 10% to 12% annually through 2025, and earnings per share to increase between 15% and 20% in that time. Same-store sales will grow by at least 5%, Starbucks said Thursday. Last year, the company forecast they would grow between 7% and 9% annually.
Starbucks also announced a $3 billion cost savings plan, set to be implemented over the next three years.
The company’s store expansion plan is largely unchanged. Starbucks is reiterating its aim to operate 55,000 stores by 2030, an increase of 45% from its current tally of about 38,000. Most of these new store openings will be outside North America, Starbucks added.
Starbucks rewards members are expected to double from the current 79 million within the next five years.
Here are more takeaways from Thursday’s event.
The pandemic was hard on Starbucks stores, Narasimhan told Barron’s. The early stages of the lockdown snarled supply chains and closed off cafes. Many locations pivoted to drive-through and mobile-order only formats—and in the process, trained customers to drink their coffee on the go, analysts say.
Although grab-and-go is typically a more profitable business model than the company’s traditional sit-down cafe model, it comes with a new set of challenges. Perhaps the biggest is the impact on baristas. Some baristas told Barron’s that their jobs have gotten more stressful with the rise of mobile ordering and delivery, as they now have to juggle an onslaught of orders that, in some cafes, have turned every hour into rush hour.
“A lot of things didn’t go the way that they normally do for a company that was focused on human connection,” Narasimhan said.
Triple-Shot aims to streamline baristas’ work every step of the way—from overhauling back-end procedures, such as recording inventory, to improving daily minutiae, like the way customers pick up their orders. Part of this effort includes opening stores with new layouts, like drive-through only or delivery only, to better serve the needs of the local market. Starbucks is planning on increasing the number of take-out only or delivery-only stores, both of which comprise 1% or less of the current store portfolio. By 2025, Starbucks aims to redirect 40% of delivery orders to delivery-only stores.
Through its investment in efficiencies, the company says it can cut more than $3 billion in costs over the next three years up and down the supply chain. It plans to reinvest those funds in the business and to deliver shareholder returns.
Starbucks announced plans to invest $1 billion in employee initiatives, including installing new technology in stores, raising wages, boosting benefits, and improving scheduling. Since 2020, hourly total cash compensation has increased by nearly 50%. By 2025, the company plans to double hourly incomes compared with 2020 through more hours and higher wages.
This is the second round of workforce investment Starbucks has rolled out since it started dealing with a rise in unionisation activity two years ago. The first billion-dollar round was announced in May 2022, and was funneled into pay raises, additional training, and better technology in stores.
Some union members and politicians have criticised the way Schultz and the company handled the company’s early stages of unionisation. They point to dozens of complaints the National Labor Relations Board has filed against the company, and Schultz’s public comments that unions were contrary to his vision for Starbucks. A month after Narasimhan took control of the company, a group of more than 40 of the union’s allies sent him a letter, urging him to “create and build a healthy working relationship with unionised partners.”
Close to half a year later, Narasimhan’s stance on unionisation is still a bit of a mystery, investors say. When Barron’s asked him how the employee investments factored into his and the company’s perspective on unionisation, he said he would only talk about the partner investments. The company has long emphasised the investments made in its workforce when asked about unionisation efforts.
“We have a holistic view of the kind of bridge that we provide our partners to a better future and it is grounded in the idea of a strong operating culture,” he told Barron’s. “It is grounded in the idea of human connection. If you look even at our mission, every word in that mission is about giving the barista agency.”
China has become Starbucks’ second largest market after the U.S. On Thursday, the company reaffirmed its commitment to growing in the country despite rising operational challenges.
“I’m really bullish on China, in the long run,” Narasimhan said in an interview.
He added that the company was also planning on expanding even further in other international markets. Three out of four new stores over the near term will be opened in markets outside the U.S., including in Southeast Asia and Latin America.By 2030, the company plans to have 35,000 stores outside of North America. As of Oct. 1, it had a little over 21,000 international stores.
Starbucks stock closed 9.5% higher Thursday, buoyed by a stronger-than-expected fiscal fourth quarter. Shares were largely unchanged in after-hours trading, up 0.2%.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
What a quarter-million dollars gets you in the western capital.
Alexandre de Betak and his wife are focusing on their most personal project yet.
4 min
U.S. investors’ enthusiasm over Japanese stocks at this time last year turned out to be misplaced, but the market is again on the list of potential ways to diversify. Corporate shake-ups, hints of inflation after years of declining prices, and a trade battle could work in its favor.
Japanese stocks started 2024 off strong, but an unexpected interest-rate increase in August by the Bank of Japan triggered a sharp decline that the market has spent the rest of the year clawing back. Weakness in the yen has cut into returns in dollar terms. The iShares MSCI Japan ETF , which isn’t hedged, barely returned 7% last year, compared with 30% for the WisdomTree Japan Hedged Equity Fund .
The market is relatively cheap, trading at 15 times forward earnings, about where it was a decade ago, and events on the horizon could give it a boost. Masakazu Takeda, who runs the Hennessy Japan fund, expects earnings growth of mid-single digits—2% after inflation and an additional 2% to 3% as companies return more to shareholders through dividends and buybacks.
“We can easily get 10% plus returns if there’s no exogenous risks,” Takeda told Barron’s in December.
The first couple months of the year could be volatile as investors assess potential spoilers, such as whether the new Trump administration limits its tariff battle to China or goes wider, which would hurt Japan’s export-dependent market. The size of the wage increases labor unions secure in spring negotiations is another risk.
But beyond the headlines, fund managers and strategists see potential positive factors. First, 2024 will likely turn out to have been a record year for corporate earnings because some companies have benefited from rising prices and increasing demand, as well as better capital allocation.
In a note to clients, BofA strategist Masashi Akutsu said the market may again focus on a shift in corporate behavior that has begun to take place in recent years. For years, corporate culture has been resistant to change but recent developments—a battle over Seven & i Holdings that pits the founding family and investors against a bid from Canada’s Alimentation Couche-Tard , and Honda and Nissan ’s merger are examples—have been a wake-up call for Japanese companies to pursue overhauls. He expects a pickup in share buybacks as companies begin to think about shareholder returns more.
A record number of companies have also delisted, often through management buyouts, in another indication that corporate behavior is changing in favor of shareholders.
“Japan is attracting a lot of activist interest in a lot of different guises, says Donald Farquharson, head of the Japanese equities team for Baillie Gifford. “While shareholder proposals are usually unsuccessful, they do start in motion a process behind the scenes about the capital structure.”
For years, money-losing businesses were left alone in large corporations, but the recent spate of activism and focus on shareholder returns has pushed companies to jettison such divisions or take measures to improve them.
That isn‘t to say it is going to be an easy year. A more protectionist world could be problematic for sentiment.
But Japan’s approach could become a model for others in this new world. “Japan has spent the last 30 to 40 years investing in business overseas, with the automotive industry, for example, manufacturing a lot of the cars in the geographies it sells in,” Farquharson said. “That’s true of a lot of what Japan is selling overseas.”
Trade volatility that hits Japanese stocks broadly could offer opportunities. Concerns about tariffs could drag down companies such as Tokio Marine Holdings, which gets half its earnings by selling insurance in the U.S., but wouldn’t be affected by duties. Similarly, Shin-Etsu Chemicals , a silicon wafer behemoth that sells critical materials, including to the chip industry, is another potential winner, Takeda says.
If other companies follow the lead of Japanese exporters and set up shop in the markets they sell in, Japanese automation makers like Nidec and Keyence might benefit as a way to control costs in countries where wages are higher, Farquharson says.
And as Japanese workers get real wage growth and settle into living in an economy no longer in a deflationary rut, companies focused on domestic consumers such as Rakuten Group should benefit. The internet company offers retail and travel, both of which should benefit, but also is home to an online banking and investment platform.
Rakuten’s enterprise value—its market capitalization plus debt—is still less than its annual sales, in part because the company had been investing heavily in its mobile network. But that division is about to hit break even, Farquharson says.
A stock that stands to benefit from consumer spending and the waves or tourists the weak yen is attracting is Orix , a conglomerate whose businesses include an international airport serving Osaka. The company’s aircraft-leasing business also benefits from the production snags and supply-chain disruptions at Airbus and Boeing , Takeda says.
An added benefit: Its financial businesses stand to get a boost as the Bank of Japan slowly normalizes interest rates. The stock trades at about nine times earnings and about par for book value, while paying a 4% dividend yield.
Corrections & Amplifications: The past year is expected to turn out to have been a record one for corporate earnings in Japan. An earlier version of this article incorrectly gave the time frame as the 12 months through March. Separately, Masashi Akutsu is a strategist at BofA. An earlier version incorrectly identified his employer as UBS.
