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Starbucks Fourth-Quarter Earnings Review: What Investors Need to Know

By Matthew Frankel, CFP® and Brian Withers - Feb 9, 2021 at 7:21AM

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The coffee giant reported a pretty strong quarter. Here are the key highlights.

Coffee giant Starbucks (SBUX 3.87%) recently reported its fourth-quarter earnings, and the results were pretty impressive all around. Despite the effects of the COVID-19 pandemic, Starbucks' business held up significantly better than most other food and beverage companies. In this Fool Live video clip, recorded on Jan. 28, Fool.com contributors Brian Withers and Matt Frankel, CFP, discuss the key numbers investors should know.

Brian Withers: We can start with Starbucks. I will get going. I am actually very interested in both of these companies as just a general look at the economy, I sent you a link just before the show started and for the first time in a long time, for the full year, the gross domestic product contracted at 3.5%. That's the first contraction since, like, 2009 and the biggest drop since 1946. It's not surprising as everybody was staying indoors. I know some of the other shows we looked at, as people are saving more money lately. I think Starbucks and MasterCard (MA 4.34%) are two really good indicators of the economy and it will be interesting to see how they both compare. Starbucks' year, they're reporting that the period that they ended up, their year ended Dec. 27, 2020, and it's really the story of two regions. Any guesses of what those two regions are, Matt?

Matthew Frankel: Asia.

Withers: More specifically, China.

Frankel: China.

Withers: Where they started, the other one is the U.S. Between the U.S. and China, Starbucks company stores make up 61% of all the stores that they have. But those two regions, those two countries, make up 78% of the revenue. It's really interesting to see the different dynamics because the coronavirus started in China and they locked down fairly quickly. Then the U.S. got started almost a quarter later with the lockdowns and shutdowns and things. Let's start with the U.S. Revenue of $4.3 billion down 5% overall. But sequentially, from quarter to quarter, it went up about 10%. Same-store sales were down five. But last quarter, they were down nine. We're making incremental improvement here. The most interesting thing for me, and this happened both this quarter and last quarter, transactions are down 21%. That is somebody going into the store, and making a purchase, and getting a receipt. But the value of that receipt went up 19%. That's just amazing to me. They commented on it and they said that it's a number of different things and it's meaningfully higher than pre-pandemic levels driven by group order. Somebody going out and getting something for the family, combination of increased beverage attach, which I think is related to, "Hey, if you're going out, can you get me a sandwich anyway?" You're going to Starbucks for a coffee, so I don't want to go to two places. Premium beverage mix, if somebody else is buying a stuff for you, why don't you [laughs] get the upside down frozen latte. Increased customization, upsizing, and a high all-time food attachment. Pretty interesting. But China is a completely different story. They were much further removed. The last three months, China locked down quickly, and then they opened up pretty quickly. Starbucks actually opened 160 stores and crossed a 4,800-store milestone, and 13% growth in new stores, they entered 15 new cities, revenue was up 22%, 5% increase in same-store sales. They had a little bit different dynamics with the transactions and ticket count. Transactions were down three percent and ticket value was up 9%. They were up 12% sequentially. Pretty interesting. The guidance for China in the upcoming quarter is plus 100% same-store sales. Which you'd think about it, is January, February, and March when China was on pretty much heavy lockdown, so having a double in the store visits and what-not, is not out of the realm. Their gross operating margin also improved sequentially. What's most interesting to me, Matt, is that they gave some guidance for full year 2021 last quarter, and they reiterated the guide in this quarter. They feel strongly about global store sales growing for the full year between 18% and 23%, driven by China gross sales of 27% to 32%.

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