Starbucks (NASDAQ:SBUX) and Bloomin' Brands (NASDAQ:BLMN) operate very different dining establishments. People know Starbucks for its specialty, high-quality coffees, although it offers other beverages like tea and certain food items. Bloomin' Brands mostly operates casual dining restaurants, but it also has a chain that is more upscale.
While the pandemic affected both companies last year, it is important to look beyond the recent challenges to see which offers a better long-term return. To do that, it's time to sit down and dig into each company's growth prospects.
Starbucks' revenue for fiscal 2020 (which ended Sept. 27) fell by more than 11%, from $26.5 billion to $23.5 billion. However, management claimed that the pandemic caused a revenue shortfall of more than $5 billion compared to its expectations due to closed stores, fewer hours of operation, and limited seating.
While COVID-19 hurt Starbucks' results last year, the company adapted quickly by accelerating mobile ordering and rolling out curbside pickup. The good news is that as the company made modifications and stores reopened, results improved throughout the year. Same-store sales (comps) were down 9% in the quarter ending in late September, much better than the 40% comps decline in the quarter ending June 28. As of the end of September, the company had reopened virtually all of its establishments. Management reported that its two largest markets, the U.S. and China, were recovering nicely.
For 2021, Starbucks expects a 17% to 22% comps increase for its U.S. locations, and a 27% to 32% rise for those in China. With a loyal customer base and strong expansion opportunities, particularly in China, where it opened more than 580 locations last year, Starbucks is getting itself back on track.
The majority of Bloomin' Brands' sales (over 60%) come from its Outback Steakhouse restaurant. This is a casual dining establishment with a focus on steak that has an average check of $23 a person. It also has other brands in the same market, such as Carrabba's Italian Grill and Bonefish Grill. Then, at the high end, Bloomin' operates Fleming's Prime Steakhouse & Wine Bar.
Heading into 2020, Bloomin' was reporting positive comps. In 2019, they were up by 1.2% in the U.S. across all of its brands. But this was due to a higher check as customer traffic dropped. It is a competitive industry, and Bloomin' entered 2020 with a plan to improve the guest experience, increase off-premise dining, and remodel and relocate restaurants.
The emphasis on providing carry-out and delivery services helped sales, and Bloomin' retained 50% of this business as it reopened locations to the public. With the changing circumstances, management's focus is on providing value through a smaller menu selection that offers larger portion sizes and lower prices. It is difficult to assess its success, although management noted that its third-quarter comps, which dropped 12.8% in the U.S., outperformed the industry. However, these steps didn't drive higher traffic, with guest counts down while the check was higher. It is difficult to make a judgment in the COVID-19 environment, though.
Starbucks has built a loyal customer base by sticking with premium, unique coffees, teas, and other beverages. In the meantime, despite a challenging year, the company showed its confidence in the future by raising November's quarterly dividend by 10% to $0.45, making it a decade of annual increases. The dividend yield is 1.7% at Monday's prices.
On the flip side, Bloomin' Brands operates in an ultra-competitive space. While it attempts to differentiate itself based on its offerings, this is always a challenge. After last March's dividend, the board of directors suspended the payment. Although COVID-19 created an uncertain environment, and Bloomin' took steps to conserve cash, this certainly doesn't signal management's belief in the future.
All in all, Starbucks, which has withstood the test of time, wins this investment battle.