With a quarterly report looming that could indicate continued sluggishness in its U.S. business and with its stock down about 12% so far this year, Starbucks (SBUX) is banking that some hype around its China growth plans may get Wall Street excited once again.
The coffee giant announced Wednesday that it will more than double its store count in China to 5,000 by 2021. Starbucks has done business in the tea-loving China for about 17 years, and now serves up pricey lattes at more than 2,300 cafes across 100 cities. The company also appointed its first chief executive for China in Belinda Wong, promoting her from president of that outfit.
Previously, Starbucks targeted 3,400 stores in China by the end of fiscal 2019.
China has been a bright spot for Starbucks, so hyping the potential to open stores there is logical. Same-store sales in the region for the fiscal third quarter ended June 26 spiked 7%, driven by more people visiting Starbucks stores. The country has more than 10 million Starbucks rewards members. By the end of this year, Starbucks will also debut ready-to-drink products such as bottled frappes in partnership with Tingyi.
But the timing of the announcement arrives as Starbucks battles concerns among investors over slowing growth in its core U.S. market.
Starbucks reported that same-store sales for the third quarter rose 4%, snapping a 25-quarter stretch of 5% growth or greater. Results also marked a steep slowdown from 7% same-store sales growth delivered in the preceding quarter. CEO Howard Schultz called the slowdown in the U.S. an "anomaly" and did his best to remind investors Starbucks has seen pockets of sales softness tied to prevalent economic conditions in the past only to bounceback when the environment turned for the better.
Unfortunately, Wall Street has chosen to stay worried on what Starbucks may announce for the fourth quarter, with sentiment not being helped by a broader slowdown in people eating out. Since the company's third-quarter earnings release on July 21, shares of Starbucks have dropped roughly 8.6%.
"Investors are, once again, fixated on whether Starbucks will do a 5% same-store sales increase in the fourth quarter -- as the company promised -- or if another 4% increase is likely, which itself would put pressure on first fiscal quarter 2017 results as the sales comparisons toughen another point," cautioned JPMorgan analyst John Ivankoe in a recent note.