Starbucks (NASDAQ: SBUX) stock slipped when the market opened this morning after the coffeehouse reported sales that were below analyst expectations. The coffee chain company explained during the report that the pandemic is continuing to hurt its business.
Starbucks earnings report
Shareholders were feeling optimistic before the call as the company’s previous earnings beat expectations and the stock has witnessed a recent rally, jumping more than 20% since the start of November. However, the situation remains that the virus is still a present threat to people’s health and for businesses as vaccine administrations have only just begun.
The company recorded adjusted earnings per share (EPS) of $0.61 on revenue of $6.75 billion, down 5% year-over-year (YoY). Wall Street expected an EPS of $0.55 on revenue of $6.91 billion.
The beverage provider really missed when it came to global same-store sales, which were down 5% for Q4 2020. This drop was fueled by a 19% reduction in transaction volume, even though average order totals managed to rise 17% in the same period. Sales in stores in the U.S. were hit the hardest, with a 6% decline in comparable sales, while international sales were 3% lower. Starbucks margins also declined, impacted by lower demand from consumers and higher wage costs due to the pandemic.
Starbucks stated that for the upcoming quarter, it expects an EPS of between $0.45 and $0.50 — which is below the $0.59 analysts were predicting.
Impact of COVID-19 on Starbucks
The recent health emergency has had a devastating impact on the coffee giant as lockdown restrictions resulted in many of its 33,000 cafes, which are dotted around the world, being restricted or forced to close. Away-from-home coffee has not been popular as consumers were instructed to only leave the house for necessary purposes, meaning luxuries like expensive coffee were one of the first commodities to see their sales fall.
On a positive note, Starbucks shares have recovered from their March 2020 lows. The stock has jumped almost 17% in the last three months over the prospect of a reopened economy spurred by vaccine rollouts. A focal point for the quarter included a 15% YoY increase in active loyalty card ‘Starbucks Rewards’ holders to 21.8 million people. Furthermore, 278 new store openings resulted in 4% unit growth and mobile orders were up 17% from pre-pandemic times.
Starbucks CEO Kevin Johnson stated on the call that the Washington-based company had a “very strong” holiday season. Gift card sales exceeded projections and Johnson called the Irish Cream Cold Brew the “new holiday favorite.”
Recovery in China
The biggest lift from the earnings report came when Starbucks reported that same-store sales in China rose 5%. The country is the company’s second-largest market and this increase represented the first positive since the outbreak of coronavirus. Next quarter, same-store sales are expected to double in China.
Starbucks’ earnings report was a stark reminder for Wall Street that even the largest multinational restaurant chains are still struggling with the effects of the pandemic. In Starbucks’ case, U.S. sales have been hit very hard and the earnings call is yet another indication of how China seems to be the only economy in the world right now reporting growth.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Content Writer at MyWallSt
Nicole's favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.