How has Starbucks stock performed since the start of the COVID-19 pandemic?
Starbucks (SBUX 1.06% ) fell 40% from peak to peak as a direct result of the pandemic. It has since recouped much of the losses, but this iconic large cap growth company is still 22% off its all-time high of around $100/share last July.
In its latest quarter, the global coffee giant saw a 38% decline in revenue and reported earnings per share (EPS) of -$0.46 from $0.78 just a year ago . The pain was entirely attributable to COVID-19. Interestingly, the average ticket size per customer actually increased by 25% over the period, meaning that the decline in profits and sales was driven by a sharp drop in customer traffic.
As Starbucks stores continued to open, ticket growth slowed and customer traffic began to normalize. The company expects this trend to continue as reopenings progress.
Following a $3 billion debt offering by the company to boost liquidity amid COVID, Fitch downgraded the company’s credit rating by one notch from BBB+ to BBB while maintaining an outlook. negative credit for the company. Starbucks today has $14.64 billion in long-term debt. All of the new credit issued has taken Starbucks’ debt-to-equity ratio from around 10% in January to over 20% today.
This is far from bad news. Starbucks paid a cash dividend of $0.41/share this quarter, possibly due in part to newly issued debt. That represents year-over-year dividend growth of 14% thanks to a historically painful pandemic — barely the action of a spooked management team. Moreover, the expansion of the number of stores did not stop because of the pandemic. During the third quarter, the company opened 130 new stores worldwide. Today, Starbucks has 32,180 total locations, 49% of which are not owned by the company, but are licensed to franchisees.
The path to follow
To move with the times, Starbucks decided in May to accelerate the mobile and digital transformation of its in-store footprint. CEO Kevin Johnson and his company plan to launch curbside pickup in several hundred locations before rolling out the offer company-wide.
The program will focus on remote ordering, contactless delivery and physical distancing. Going forward, Johnson plans to leverage his company’s app and digital offerings to drive caffeine sales growth.
To give an idea of how it’s doing so far, total Starbucks app downloads increased 17% to 3 million from last quarter. The percentage of total company sales coming from mobile and digital orders increased from 16% to 22% this quarter due to the effective evolution of the company and COVID-19. This not only increases brand friendliness but also reduces the cost of order taking and customer acquisition.
COVID-19 has certainly taken its toll on countless quality stocks; Starbucks is one of them. Still, the company is beginning to see an upturn in business and is effectively transforming its stores over time. For Starbucks, there could be better days ahead.
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