What Will the 10,000 New Eco-Friendly Stores Do for Starbucks Stock?

Starbucks (NASDAQ:SBUX) plans to build 10,000 “greener stores” worldwide by 2025, once again placing Starbucks stock in the minds of thirsty investors. After all, these new and renovated eco-friendly stores should result in utility cost savings worth $50 million over the next 10 years.

The greener stores will emphasize on installing technologies and practices that will help in both water and energy savings that could help bolster the picture around SBUX stock in the future. These stores will also focus on waste reduction, healthy environment and usage of renewable energy. Further, SBUX has been working with the U.S. Green Building Council (“USGBC”) for developing the LEED for the Retail Program. In 2005, the company opened its first LEED-certified store and now runs over 1,500 such stores worldwide in 20 countries.

Starbucks’ green practices are already helping it to save nearly $30 million in operating costs annually. Notably, its latest resolution of building eco-friendly stores comes on the heel of its decision to eliminate usage of plastic straws across all its locations by 2020. Instead of plastic straws, the company will start using straws made from biodegradable materials.

We believe these eco-friendly moves are cost effective and should help improve margins, and possibly the case for Starbucks stock. Declineing margins has been a major concern for the company and Starbucks stock investors.

In the first, second and third quarter of fiscal 2018, SBUX’s non-GAAP operating margin shriveled by 170 bps, 80 bps and 230 bps, respectively. The decline in the metric during the recently reported quarter can be primarily attributed to a 130 basis points impact from investments associated with the U.S. tax law change and product mix shift. Rise in costs due to investment in digitalization also dented the company’s operating margin. For fiscal 2018, management expects a moderate decline in operating margin, reflecting additional partner and digital investments.

Starbucks Stock Price Performance

In the past three months, SBUX stock has lost 3.9% compared with the industry’s 1% decline. The underperformance in SBUX can be primarily attributed to dismal China-Asia-Pacific (CAP) comps. In third-quarter fiscal 2018, comps were down 1% versus 3% growth registered in second-quarter fiscal 2018.

Zacks Rank & Key Picks

Starbucks stock currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include BJ’s Restaurants (NASDAQ:BJRI), Darden Restaurants (NYSE:DRI) and Dine Brands Global (NYSE:DIN). While BJ’s Restaurants sports a Zacks Rank #1 (Strong Buy), Darden Restaurants and Dine Brands Global carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BJ’s Restaurants earnings have surpassed the Zacks Consensus Estimate by an average of 6.4% in three of the trailing four quarters.

Darden Restaurants delivered better-than-expected earnings in the preceding four quarters, with an average beat of 3.1%.

Dine Brands Global reported better-than-expected earnings in the trailing four quarters, with an average beat of 8.1%.

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Starbucks Stock Price Performance

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