Starbucks (SBUX -1.20%) last week reported fiscal 2020 fourth-quarter adjusted earnings per share of $0.51 on revenue of $6.2 billion, higher than consensus projections of $0.31 on $6.1 billion. The company saw an accelerated recovery in two of its fastest-growing markets: the U.S. and China. It's also adapting well as customers' purchasing patterns changed this year due to COVID-19.
Those are the top-level results from the quarter, but there were some additional details in the earnings report that investors might find useful when deciding whether to buy stock in this international coffeehouse chain. Here's a more detailed look at three more things you should know about Starbucks' latest quarter.
1. The U.S. and China markets are recovering quickly
Starbucks reported better-than-expected growth in two of its key markets, the U.S. and China. During the fiscal fourth quarter, comparable store sales in the U.S. decreased year over year by 9% (versus a 41% year-over-year drop in Q3 ), on a 25% decrease in transactions, which was partly offset by a 21% increase in average ticket.
The restaurant chain had a comparable store decline of 4% in the U.S. for September, a sharp uptick and recovery compared to a 65% decrease five months ago during the height of COVID-19. Transaction volumes improved during the quarter, helped by a return to in-store seating at about 63% of U.S. Starbucks restaurants as of the end of September.
Comparable-store sales in China were down 3% year over year during the fourth quarter, a nice improvement from the 19% year-over-year decline in the third quarter. There were monthly improvements in comparable sales during the period. Starbucks is confident about this market because of the rapid return to store openings, after a pause earlier this year. CEO Kevin Johnson spoke of this on the fourth-quarter earning call: "Despite the challenging environment imposed by the pandemic, we crossed both the 4,600- and the 4,700-store milestone in Q4, opening almost 260 stores in the fourth quarter alone. That's an impressive 581 stores or 14% growth in the last 12 months."
Although people are being cautious around dining out currently, Starbucks sees a surge in traffic once there are therapeutics for COVID-19. Customers will return to socializing and seeking community, including spending more time in coffee shops.
Johnson commented on how Starbucks is well-positioned for a return to normalcy as well as for the current cautious environment: "We are also investing and ensuring that when that demand unfolds that third place experience will be at the pinnacle of serving those customers who want to come and be a part of the community and socialize again because that's what, that's something that we all aspire for."
2. Starbucks is adapting to shifting consumer behaviors in the key U.S. market
Because of vast shifts in customer behavior this year due to COVID-19, Starbucks has quickly adapted its services. More consumers are working remotely and schooling from home, but they are still looking for convenient, safe, and comfortable café experiences. The coffee chain is adjusting its customer experience to boost client engagement. Said Johnson on the fourth-quarter earnings call:
Broadly speaking, we've seen US transactions migrate from dense metro centers to the suburbs, from cafes to drive-throughs, from early mornings to mid mornings with outpaced recovery on the weekends. We've adjusted our operations to match these new customer behavior patterns including multiple, new protocols to provide a safe experience for our partners and customers. And this has resulted in customer connection scores, which are well above prior year levels.
The consumer discretionary company saw positive comps in the fourth quarter for suburban and drive-through locations, while comparable sales were negative in denser urban locations. To meet demand at suburban locations, Starbucks rolled out convenient curbside pickup to 800 U.S. locations, with an additional 2,000 U.S. stores adding the feature by the end of September 2021.
3. Investments in digital initiatives will help sustain growth
The chain is still getting a large percent of its sales from drive-through and mobile orders, which comprised about 75% of U.S. fourth-quarter revenue. Although this is down from the 90% share of sales in the third quarter, the current figure is above the normal pre-COVID-19 level of about a 60% share. Starbucks is continuing to invest in digital initiatives to sustain this growth.
The Starbucks rewards program is also boosting digital engagement in the U.S., which drove "47% of U.S. company tender" for the second quarter in a row (up from 43% in the first quarter ). The company is increasing the number of rewards members, adding 3 million in the fourth quarter, up 10% year over year. Starbucks also had more downloads of its app in the fourth quarter, along with active customers who joined the Starbucks rewards program.
Starbucks' mobile platform in China is important to that market. Mobile revenue was 26% of revenue, more than double year over year. The rewards program is working together with the digital programs in China. Johnson gave more detail on the fourth-quarter earnings call: "The digital innovations we launched in China throughout fiscal 2020, including a new WeChat Mini program and the enhanced Starbucks Rewards program along with our digital partnership with Alibaba has fueled customer engagement and strong sequential growth in active Starbucks Rewards members."
Overall, Starbucks is well-positioned for the current environment where consumers are looking for comfort and convenience at a reasonable price point. It's been nimble in adapting to shifting customer behaviors impacted by COVID-19 and is ready for when the virus eventually subsides.