Starbucks ' (NASDAQ: SBUX) fiscal 2017 is officially in the rearview mirror. While the world's largest coffee retailer managed to post year-over-year growth in comparable sales, revenue, and non-GAAP EPS, growth ultimately lagged management's initial expectations for the year.
However, management believes it can rekindle its growth rates. Alongside its fourth-quarter fiscal 2017 results, management laid out some aggressive targets for the future.
Here's a look back at Starbucks' fiscal 2017, as well as a preview of what management expects from fiscal 2018 and beyond.
How Starbucks missed the mark
When Starbucks reported its fourth-quarter and fiscal 2016 results last November, management provided a surprisingly ambitious outlook for fiscal 2017. It said it expected global comparable store sales growth in the mid-single digits, double-digit revenue growth, approximately 2,100 net new stores, and non-GAAP EPS between $2.12 and $2.14.
Unfortunately, there was a large gap between management's expectations for the year and actual results. Global comparable store sales and revenue increased 3% and 5% year over year, respectively, and non-GAAP EPS was $2.06. Starbucks did, however, meet its target for new store openings. Net new stores in fiscal 2017 were 2,254.
This underperformance notably put Starbucks behind on the five-year strategic plan it announced last December. At the time, Starbucks said it was aiming to average 10% revenue growth, 15% to 20% EPS growth, and mid-single-digit comparable stores growth annually over the next five years.
For its underperformance in fiscal 2017, management blamed a "difficult operating environment" that led to many retailers underperforming their targets in 2017.
With actual results for fiscal 2017 coming in well below management's targets for most of its key metrics, it's unsurprising that the stock didn't perform spectacularly during this period. Shares gained just 5% since Starbucks reported its fourth-quarter results for fiscal 2016 last November. In this same time frame, the S&P 500 gained 21%.
Ultimately, Starbucks' growth in 2017 was bittersweet. While it was disappointing that the coffee giant meaningfully underperformed its own outlook, it was good to see Starbucks growing comparable sales in a challenging environment.
Management is still bullish
After missing its targets this significantly, management re-oriented its five-year targets .
Starbucks CEO Kevin Johnson explained the company's decision to revise its long-term targets in the company's fourth-quarter earnings call by stating, "Starbucks posted record, in many cases industry-leading, financial and operating results in both fiscal '16 and '17, but a balanced conversation of our performance over the past two years acknowledges that we could not consistently deliver against our long-term financial targets, prompting a review to ensure that our targets are aligned with our strategic plan in the current operating environment."
Interestingly, management continued to expect growth to accelerate from current levels. Management also guided for an uptick in growth in fiscal 2018. Here's Starbucks' fiscal 2017 growth versus management's guidance for fiscal 2018 and its updated five-year outlook.
Fiscal 2018 Guidance
Average Expected Annual Growth Over the Next 5 Years
Comparable store sales growth
3% to 5%
3% to 5%
High single digits
High single digits
Non-GAAP EPS growth
12% to 13%
12% or greater
Data source: Starbucks fourth-quarter press release and earnings call. Table by author.
Despite how aggressive Starbucks' guidance and long-term outlook seem, management insists that these targets are conservative. "[W]e believe that these new targets represent performance that we can meet or beat in the years ahead while continuing to deliver best-in-class growth for a global business of our scope and scale," said Johnson.
Could Starbucks be setting itself up for another year of missed targets? Or is there more substance behind Starbucks' aggressive outlook than investors realize?
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