Starbucks was one of the few retailers that shut shops early on as the coronavirus ravaged through from China to Europe before finding its way across to the US. The company had over 4,000 stores across China alone and while the US initially offset, the subsequent quarter became all the more challenging as COVID-19 unleashed across the world. The stock price has underperformed the benchmark significantly, even though it did recover sharply from its lows.

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Unsurprisingly, the company reported its steepest ever comp sales decline in its history, tumbling 40% in the quarter ending June.

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The company also paid its employees bonuses and allowed them to stay home if they were not comfortable working during the pandemic for a period of 30 days. It says it lost $3.1bn in sales in the quarter ending June 30th as a result of store closures, limited hours, and fewer customer visits. SBUX reported an operating loss of over $700mn as the company spent about $350mn during the quarter on virus-related benefits and pay for workers, royalty deferments for international licensees, and payments to suppliers needing a cash infusion. However, the numbers came in better than expected, as the better performance in China, which is back to normalcy, helped the company to stave off some losses. While US comp sales declined 41% (due to lower volumes partially offset by growth in average ticket size), China comp sales declined 19% with comparable transactions down 27%, slightly offset by a 10% increase in average ticket.

What Next?

The company reported that the vast majority of the Starbucks stores have reopened across the US and international markets. It mentioned that 97% of company-operated stores are open while 87% of globally licensed-stores are open, with the stores at the airports primarily being closed. The coffee chain expects the final quarter global same-store declines in the range of 12-17% and for revenue to decline by 10-15% compared with the previous quarter. It expects to log earnings in the range of 6 to 21 cents per share which came in higher than the estimates.

The company is seeing a V-shaped recovery and in the 3,100 stores opened throughout the entire quarter, it witnessed significant improvement from minus 14% comp in May to minus 1% in June to a positive 2% comp for July. The company is also accelerating the transformation of the Americas store portfolio by expanding convenience-led formats with curbside delivery and Starbucks Pickup locations to keep up with the changing behavior patterns, ramping up from 250 stores to 1,000 stores in the quarter.

I believe this is one of those rare opportunities to move aggressively and further differentiate Starbucks from our competition - Starbucks CEO Kevin Johnson

Closing Thoughts

Starbucks remains one of the strong brands to storm through the COVID-19 crisis with accelerating mobile orders, improving same-store sales, and accelerating innovation through loyalty rewards, curbside delivery, and enhancing customer service. We rate the stock as a Buy at current levels and tout the company's strong brand recognition with improving sales and margin recovery in 2021 warranting the stock to be attractive at current levels.