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Here's the 1 Thing to Focus On from Starbucks' Mixed Q2 Results

By Neil Patel - Apr 30, 2021 at 12:53PM

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The coffee giant beat on earnings and missed revenue estimates by Wall Street. But there's one thing that really stood out.

Second-quarter results for Starbucks (SBUX -0.83%) weren't well-received by investors. The stock price dropped over 2% after the company reported adjusted earnings per share (EPS) of $0.62 and revenue of $6.7 billion. 

While profit exceeded analyst estimates, sales did not. Global same-store sales (comps) growth of 15% added to the negative reaction, as this was 2% lower than expectations. 

The business's momentum, however, is still very strong. In fact, management raised its full-year guidance for fiscal 2021, indicating confidence in a continued recovery.  

Investors should be pleased with Starbucks' results for the March-ended quarter, most especially because the important U.S. market is back to registering growth. Here's what that could mean for the company. 

iced coffee dricks from Starbucks sit on a wood countertop.

Image source: Starbucks.

The U.S. is back 

In each of the last three quarters, Starbucks' domestic sales fell from the prior-year periods. But this quarter was different. Revenue of $4.3 billion was up 8% from last year, with comps up 9% as store count remained relatively flat. The U.S. accounted for 64.5% of company sales during Q2. 

Digging a little deeper, we can see some interesting data points. As has been the case throughout the pandemic, transaction counts have been down, while the average ticket size rose. This makes sense intuitively. People spent more time at home, so making fewer trips to Starbucks and ordering for multiple people at once was popular among consumers. 

This trend hasn't changed. In the most recent quarter, transaction counts were down 10%. Average ticket sizes jumped an impressive 21%. To see Starbucks' U.S. operations back in expansion mode with this dynamic still in play is noteworthy for two reasons. 

First, many people are still working remotely. So, to see revenue growth in the U.S. in this kind of environment is welcome news for shareholders. And this ties into the second point. 

As consumers gain more mobility with the reopening of the economy in the next several months, particularly with corporate offices bringing workers back, Starbucks stands to benefit from more normalized levels of transaction counts. Commuting to work presents more opportunities to make a stop at your favorite location to get that caffeine fix. 

Sure, average ticket sizes may very well fall back closer to pre-pandemic levels, but at least some of the habits consumers picked up over the past 12 months will stick. 

On the earnings call, CEO Kevin Johnson mentioned that food attach rates (the ratio of sales of a primary product to a related secondary product) were at an all-time high in the quarter, demonstrating increasing customer interest in this product category. Furthermore, a whopping 52% of U.S. sales in Q2 were from Starbucks' 22.9 million rewards members. These customers visit more often and spend more, so their higher engagement with the brand is not likely to recede going forward. 

Starbucks is poised to thrive as overall U.S. economic expansion starts to accelerate. 

The investor takeaway 

Because nearly two-thirds of its business comes from the U.S., I thought Starbucks' results this quarter were very encouraging. The company's international segment, led by China, expanded at an impressive 42% clip in the quarter, so I'm not too worried about the situation in overseas markets. 

Management is confident in the trajectory of the company over the next decade, and investors should be as well. Starbucks has always put its customers first, and to see growth again stateside bodes well for the business. 

Although the stock took a minor hit after the earnings announcement, investors shouldn't worry. This is one you want to own for the long haul. 

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