Starbucks (SBUX) losing its coffee crown in China to a domestic rival does not diminish the opportunity the American company has in the world’s second-largest economy. Despite a Wall Street Journal report that Starbucks now ranks second in sales in China behind Luckin Coffee, Jim Cramer said Monday that he would buy Starbucks stock “hands over.” This is because, Jim added, Starbucks is premium. “You want to be in premium at all times because premium means one thing: there is no price competition,” he explained. Recovering from a 2020 accounting scandal and under new leadership, Luckin currently has about 13,300 stores, almost all of them in China, the Journal reported. Starbucks, which has 6,800 locations in China, plans to increase its store presence there to 9,000 by 2025. China is Starbucks’ second-largest market behind the U.S. In its fiscal fourth quarter ending Oct. 1, Starbucks reported that revenue in China increased by 8%. year over year to nearly $841 million. By comparison, Luckin reported sales of $986.8 million in its third quarter ended Sept. 30. The Journal said the revenue shift came for the first time in the previous quarter, with Luckin sales of $855 million in the period ended June 30 and Starbucks sales in China of $822 million in the period ended On July 2. Luckin, however, is more promotional and offers great deals. discounts that are more affordable for low-income consumers. In contrast, Starbucks is high-end and targets a wealthier clientele. “What matters is how much money they make per cup, not how many stores there are,” Jim said. SBUX YTD mountain Starbucks YTD Although its economy and consumers face post-Covid headwinds, China remains a key growth market for Starbucks. Strong quarterly results on November 2, coupled with a bullish update to its Reinvention Plan on the same day, gave investors, like us, confidence in the company’s long-term growth goals. The stock soared more than 15% from the market close on Nov. 1 through the end of Friday. We also like that management is looking to reduce expenses and increase efficiency. Starbucks identified $3 billion in cost reductions over the next three years and announced margin expansion going forward. For fiscal 2024, Starbucks expects comparable sales in China to grow between 5% and 7%. Given the brand’s success in China and its continued strength in the United States, these numbers seem a bit conservative. Laxman Narasimhan, a veteran consumer products leader who succeeded Howard Schultz as CEO of Starbucks earlier this year, has revitalized the company, and we see the potential for the company to exceed these expectations. (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable fund’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY VIRTUE OF THE RECEIPT OF ANY INFORMATION PROVIDED IN RELATION TO THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR BENEFITS ARE GUARANTEED.
An employee serves a Starbucks coffee truck at Wuhan International Plaza on October 6, 2022 in Wuhan, Hubei province, China.
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starbucks (SBUX) losing its coffee crown in China to a domestic rival does not diminish the opportunity the American company has in the world’s second-largest economy.
