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Starbucks Is Recovering From Its Coronavirus Woes

By Brian Withers and Brian Stoffel - May 14, 2021 at 7:51AM

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But what's up with the stock?

Starbucks (SBUX -1.17%) sales suffered during the coronavirus as stores closed and consumers stayed in their homes to avoid getting sick. But recent results show the coffee giant is on the mend. On a Fool Live episode recorded on April 28, Fool contributors Brian Stoffel and Brian Withers discuss the highlights from the most recent quarter and whether the pullback in the stock is something to worry about.

Brian Withers: Wrapping up with Starbucks. Starbucks also had earnings yesterday, and I was just really impressed. Solid performance all around. Not quite Ollie's Bargain Outlet performance, but super solid for this global player. U.S. [same store] comps were up 9% versus down 5% last quarter so a nice turnaround in the U.S. China comps, not surprisingly, up 91% they're comparing against the lockdown quarter when China had the coronavirus last year. It's no surprise that China comps are up really significantly. Revenue overall was up 11% year over year to 6.7 billion, and earnings per share beat expectations.

They added 1.1 million active loyalty members in the quarter to bring the total to just short of 23 million. That's up 18% year over year. U.S. store count is down slightly, but U.S. revenue was up 8% and then operating income in the U.S. is up 46%. That says that traffic is picking up, and they are doing a better job of handling the labor in the stores. International store count is up 8%, international revenue is up 42%, and it swung from an operating loss last year to a plus 15.6 operating margin.

They were positive on the full year so they up their full-year guidance and operating margins, and they expect comparable sales growth for the full-year to be in the 18%-23% range. In the U.S., they're opening 850 stores but closing 800. Some of these are going to where they're mobile-only drive-through kind of digital-only pickup stores. International, they're adding a little over a 1,000 overall, but 600 of them are in China.

Just a quote on the digital customer engagement: "It was a huge driver for the quarter. U.S. Starbucks rewards contributions to the business exceeding pre-COVID levels, and for the second quarter is displaying all-time high across key metrics."

Their loyalty members in the U.S. brought in 52% of all of the revenue in the U.S. That's pretty awesome. That's a great statement on loyalty members. What to watch: Continued improvement in the business as coronavirus wanes on both the top and the bottom line.

Brian Stoffel: Two questions for you, Brian. First one, those 800 stores that are closing in the U.S. is that the same tranche of stores that they announced last year that they will be closing, or is this a new announcement?

Withers: This is not a new announcement, they were targeting this. This has been the same plan since the beginning.

Stoffel: Then I'll ask a question that I don't encourage us to ask very often, but I'm sure that we've got people better watching this who might be wondering that sounds great. They did better than they expected, they raised their outlook, and the stock is down some today, and maybe 2 or 3%. What's going on?

Withers: Interesting for the companies like Starbucks. You got to remember that it's a $132 billion market cap company, and in the last 90 days, even with the pullback today the stock is up 15%. Fifteen percent to me could be a full-year gain for the company, and I think over the last three years, the stock has doubled as well. Got to take it in context, but to me, I wouldn't worry too much about the pullback, if it pulls back even more, there might be another opportunity for long-viewed investors to get in.

Brian Stoffel has no position in any of the stocks mentioned. Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ollie's Bargain Outlet Holdings and Starbucks. The Motley Fool recommends the following options: short July 2021 $110 calls on Starbucks. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$88.35 (-1.17%) $-1.05
Ollie's Bargain Outlet Holdings, Inc. Stock Quote
Ollie's Bargain Outlet Holdings, Inc.
OLLI
$64.45 (-3.07%) $-2.04

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