Starbucks (NASDAQ:SBUX) and Keurig Dr Pepper (NASDAQ:KDP) are experiencing different circumstances as a result of the COVID-19 pandemic. While sales increased for the latter as consumers stocked up in the early days of the pandemic, the former had to reduce operations, and revenue decreased.
Still, the two are similar in that they both sell mostly beverages. Keurig Dr Pepper has ways to deliver its products to customers who are staying at home more often, and its business has been more resilient as a result. In contrast, Starbucks has had to pare back activities to help slow the spread of the coronavirus.
Starbucks had over 32,000 company-operated and licensed stores around the world as of the end of its second fiscal quarter, which is 6% more than at the same time last year. Despite its challenges, the company is not pausing its expansion plans. In fact, it opened a net 255 stores last quarter.
During the second quarter, most of the effect from the pandemic hit its international segment, where comp sales decreased 31%, including a 78% decline in China in February. However, the worst is yet to come in its Americas segment. The majority of revenue decreases in that region will be felt in its fiscal third quarter, which is when stay-at-home orders were the strictest across the U.S.
Importantly, Starbucks has now reopened approximately 95% of its company-operated stores in the U.S. Millions of people around the world thirst for the company's coffee, and when the pandemic has run its course, customers will likely return to its stores with enthusiasm. During the company's second-quarter conference call, CEO Kevin Johnson said:
Prior to mid-March, revenue growth in [the] U.S. was accelerating to the strongest level in over four years, driven by comparable-store sales growth of 8%, including comparable transaction growth of 4%. Additionally, two-year comps were tracking to 12% growth, the strongest in over three years.
What's more, Starbucks ended the quarter with 19.4 million active members of its rewards program in the U.S., a 15% increase from the year prior. These are its highest-value customers, whom the company can communicate with directly.
Keurig Dr Pepper
Net sales increased by 4.4% at Keurig Dr Pepper in its first quarter, as consumers stocked up on beverages to prepare for sheltering at home. The company's brands include some well-known names such as Keurig, Dr Pepper, Canada Dry, Snapple, Green Mountain, and The Original Donut Shop.
Interestingly, its coffee systems segment manufactures over 75% of the coffee pods used in its Keurig brewing systems in the U.S. Purchases of the company's K-Cups rose 5.6% last quarter, despite a slowdown late in the quarter caused by COVID-19.
Additionally, Keurig Dr Pepper was able to keep control of costs arising from COVID-19. Adjustments made because of the pandemic showed up in operating expenses, which increased by 9.5%. Other companies such as Amazon and Home Depot that also experienced an increase in sales saw more substantial increases in costs.
Moreover, the company expects net sales growth of 3% to 4% this year. Because of its visibility into its sales and expenses, Keurig Dr Pepper has chosen to provide full-year guidance, even though many companies are not doing so.
The ability to deliver sales growth during one of the most volatile times in history reflects well on its business. Keurig Dr Pepper is proving its resilience in the face of the health crisis, and this reduces the risk for potential investors looking to accumulate shares.
The final verdict
Keurig Dr Pepper and Starbucks are both exceptional beverage companies. Keurig Dr Pepper has an advantage in the short term in being able to sell its products to customers who are staying at home more often. Starbucks is facing an unknown business environment in the near term, and uncertainty is not a good thing for investors.
Further, Starbucks is expecting GAAP earnings per share of between $0.33 to $0.73 for its fiscal 2020, which would be a substantial decrease from its EPS of $2.92 last year. That's in stark contrast to Keurig Dr Pepper, which expects adjusted EPS growth in the range of 13% to 15% in 2020.
For those reasons, if you had to pick only one of these consumer goods stocks to invest in, it should be Keurig Dr Pepper. Finally, because volatility is likely to be high for the rest of the year, dollar-cost-averaging your desired allocation would be pragmatic.