Sunday Spotlight:
MORNING IS BACK. NOW WHAT?
Starbucks $SBUX ( ▲ 1.68% ) is being valued like a growth stock. It would have to change its core business to become one.
On the surface, the coffee giant’s turnaround plan seems to be working. The stock is up sharply this year after Starbucks posted its strongest US same-store growth in two years and projected revenue growth of 5% or more by fiscal 2028.
However, more than half of US company-operated sales, roughly $12 billion annually, occur before 11 AM. Once the morning rush fades, traffic slows while fixed costs remain.
If CEO Brian Niccol can lift post-lunch productivity to rival the 7 AM to 9:30 AM surge, store economics improve quickly. But investors are pricing the stock as if he has already. At about 37x forward earnings, shares trade at a premium to McDonald's $MCD ( ▼ 0.49% ) and Chipotle Mexican Grill $CMG ( ▼ 1.18% ).
To justify that valuation, Starbucks needs internal growth. The afternoon offers leverage. Fixed costs like rent and labor are already covered. Incremental sales during slower hours flow through at higher margins.
The company is rolling out digital menu boards to spotlight matcha drinks, flatbreads, and protein snacks as the day progresses. Tea revenue has risen roughly 70% since fiscal 2021. New beverage platforms, including energy drinks made from green coffee extracts and a revamped chai, aim to meet customers where caffeine demand shifts later in the day.
Rivals like Dutch Bros $BROS ( ▲ 1.71% ) show the opportunity. Nearly two-thirds of its visits occur after the morning rush.
Starbucks is trying to run two businesses at once. A classic coffeehouse in the morning. A customizable beverage and snack destination by midafternoon.
At this multiple, it needs both.
