Starbucks (SBUX -0.35%) fell 40% from peak to trough as a direct result of the pandemic. It has since recovered a large chunk of the losses, yet this iconic large-cap growth company is still 22% off its all-time high of roughly $100/share last July.
In its most recent quarter, the global coffee giant posted a 38% revenue decline and reported earnings-per-share (EPS) of $-.46 vs. $0.78 just one year ago. The pain was entirely attributable to COVID-19. Interestingly, average ticket size per customer actually rose by 25% during the period meaning that the profit and sales declines were driven by steep declines in customer traffic.
Image source: Getty Images.
As Starbucks stores continued to open, ticket growth slowed and customer traffic began to normalize. The company expects this trend to continue as the reopenings move forward.
As a result of a $3 billion debt offering by the company to boost liquidity amid COVID, Fitch downgraded the company's credit rating one notch from BBB+ to BBB while maintaining a negative credit outlook on the company. Starbucks today has $14.64 billion in long-term debt. All the new credit issued has raised Starbucks' debt-to-equity ratio from roughly 10% in January to over 20% today.
It's far from all bad news. Starbucks paid out a cash dividend of $0.41/share this quarter perhaps partially thanks to the newly issued debt. This represents a year-over-year dividend growth of 14% through a historically painful pandemic -- hardly the action of a frightened management team. Furthermore, store count expansion did not stop as a result of the pandemic. During the company's third quarter, it opened 130 new stores around the globe. Today, Starbucks has 32,180 total locations 49% of which are not company-owned but instead licensed to franchisees.
The path forward
To shift with the times, Starbucks in May decided to accelerate the mobile and digital transformation of its store footprint. CEO Kevin Johnson and his company plan to launch curbside pickup across several hundred locations before rolling the offering out companywide.
The program will focus on remote ordering, contactless-delivery, and physical distancing. Going forward, Johnson plans to lean on his company's app and digital offerings to caffeinate sales growth.
To give an idea of how this is working thus far, total Starbucks app downloads increased 17% to 3 million from just last quarter. The percentage of total company sales from mobile and digital orders rose from 16% to 22% this quarter as a result of the company's effective evolution and COVID-19. This not only increases the customer-friendly convenience of the brand 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 starting to see a business recovery and is effectively transforming its stores with the times. For Starbucks, there could be brighter days ahead.
