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Starbucks Remains A Compelling Growth Story

Summary

SBUX's share price has been hit quite hard since the start of 2016, down about 12%.

Concerns seem to have been driven (understandably) by weak organic sales growth figures and, in particular, transaction growth.

SBUX remains an impressive growth story, however, with excellent reported results and cash flow growth.

Investors jitters may offer long-term investors a compelling time to jump aboard, yet strengthening organic sales growth would be very welcome in Q4 results.

Starbucks (NASDAQ:SBUX) has actually fallen a little off my radar of late. This was for no more exciting reason than that I have recently picked up my "hit" of caffeine investment through my holding in UK-based Costa Coffee chain owner, Whitbread (OTCPK:WTBCY) on which I have written more for PRO readers.

Naturally enough, however, Starbucks has been carrying on doing what it's seemingly always done: growing. Yet since I last covered it in early January, its share price has taken a bit of a knock, dropping about 12% whilst the S&P 500 has lifted about 5%:

This fall-combined with a timely reminder from "Bcrew312" on my recent PepsiCo (NYSE:PEP) article-has piqued my interest in the company again.

Indeed, with its FY2016 actually finished in recent days, we are now just waiting for their Q4 and full year results. Yet, in preparation, it seemed a good time to take a look at their Q3 results to see how things were doing. Generally speaking, pretty good. However, there are a few things to watch which seem to have spooked many investors. Let's see what I mean.

Reported Growth Ticking Along?

On a reported basis things looked pretty strong with their top and bottom line progress. Operating income in the first three quarters has jumped up another 11.9%. Revenue did not quite mange to break into a double digit growth, yet at 9.5% was hardly pedestrian:

Nonetheless, compared to Starbucks recent history of growth it is clear that this is a slowdown. What is more, breaking up FY2016 so far into its three quarters it becomes clear that the growth trajectory has been very noticeably declining as the year has progressed:

This is, perhaps, a surprise as it is clear that their program of store numbers growth has continued. Up to Q3 2016, they have opened another 1,352 net stores which seems largely in line with the 1,600 to 1,700 new stores added each year since 2013:

Expansionary growth, therefore, is still chugging along nicely. So what is driving the slowing growth rates? Put simply, organic growth within the established stores is slowing down significantly.

Comparable Sales Growth Declining

This slowing comparable growth is certainly quite striking from a total sale growth...


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