ii view: Starbucks sales down in US, up in China

Covid is hurting but an upgrade to full-year 2021 earnings suggests confidence in the outlook. 

First-quarter results to 27 December

• Global comparable store sales fell 5%
• Revenue down 5% to $6.7 billion
• Earnings per share down 23% to 61 cents

Chief executive Kevin Johnson said:

“I am very pleased with our start to fiscal 2021, with meaningful, sequential improvements in quarterly financial results despite ongoing business disruption from the pandemic. Investments in our partners, beverage innovation and digital customer relationships continued to fuel our recovery and position Starbucks for long-term, sustainable growth.”

“Our results demonstrate the continued strength and relevance of our brand, the effectiveness of the actions we’ve taken to adapt to changes in consumer behavior and the steadfast commitment of our green apron partners to serve our customers and communities. We remain optimistic about our robust operating outlook for fiscal 2021 as well as our ability to unlock the full potential of Starbucks to create value for our stakeholders.” 

ii round-up:

Coffee chain Starbucks (NASDAQ:SBUX) announced a 5% fall in comparable global sales, hindered by increasing restrictions under the resurgent coronavirus pandemic.    

Reduced sales and increased Covid-related costs helped push earnings per share down by 23% to 61 cents year-over-year. It also announced the lost of its chief operating executive to Walgreens (NASDAQ:WBA). 

Starbuck shares fell marginally in after-hours US trading, having gained by more than 80% since March induced pandemic lows. Shares for KFC owner Yum Brands (NYSE:YUM) are up by a similar amount over the same period, while shares of McDonald's (NYSE:MCD) have gained by a little over 55%. 

Same store sales for Starbucks' largest home US market retreated by 5%, but gained 5% in China, its second-biggest market. Stores in the US and China now account for 61% of its near 33,000 global outlets.

Starbucks, which began trading back in 1971, opened a net 278 new stores in the period. Around half of all its stores are company operated, the other half licence operated. 

The overall global sales retreat of 5% compared with 9% in the prior quarter and by 40% in the quarter ending late June. Accompanying management estimates pointed to full-year earnings of between $2.42 to $2.62, up from a previous estimates of $2.34 to $2.54. That's in sharp contrast to the 79 cents reported for the 2020 financial year. 

Earlier in January, Starbucks declared a quarterly dividend of 45 cents per share, in line with the previous quarter, although up from the 41 cents paid over the previous four quarters. 

ii view:

Categorised under the sub sector of US restaurants and bars, Starbucks sits among globally famed companies such as McDonalds, KFC owner YUM Brands and Chipotle Mexican Grill. It came to the US stock market nearly 30 years ago at a price of $17 per share or $0.53 per share when adjusted for share splits. 

For investors, the loss of a second high-level executive in 2021 raises questions. Ongoing pandemic uncertainty also features, as does the potential for the new US government to raise corporate taxes given raised borrowings and social aspirations. But the rollout of vaccines clearly offers hope. Exposure to the world’s two biggest economies cannot be ignored. Neither should fives years of consecutive dividend increases. In all, and with the world’s addiction to coffee showing few signs of abating, Starbucks looks likely to remain a favoured long-term play.

Positives: 

• Diverse geographical footprint
• Sequential improvement in quarterly sales

Negatives:

• Uncertain Covid clouded outlook
• Competition from Luckin Coffee in China

The average rating of stock market analysts:

Buy