May 28, 2021 (IAM Newswire via COMTEX) -- The so-called “reopening boom” is benefiting Starbucks /zigman2/quotes/207508890/composite SBUX -0.02% along with others from the consumer niche that were hit hard during strict social-distancing limitations over the past year. The company’s coffeehouse business is already nearly fully recovered from COVID-19 as it grew internationally with over 100% sales spike in China l while its home U.S. market grew 9% in the most recent quarter, which altogether that helped fuel profitability growth back to double digits.
Starbucks is seeing enthusiastic demand for premium products, including cold brews, refresher drinks, and breakfast sandwiches, along with booming digital sales.
No more masks for fully vaccinated customers
Along with Starbucks, Chipotle Mexican Grill /zigman2/quotes/200781108/composite CMG +1.56% , CVS Health Corporation /zigman2/quotes/209664499/composite CVS +0.93% , Target Corporation /zigman2/quotes/207799045/composite TGT -0.96% , Walmart /zigman2/quotes/207374728/composite WMT +0.0070% and Costco /zigman2/quotes/201191698/composite COST +0.26% will no longer require impose mask wearing inside their stores to fully vaccinated customers. The policy changes come after the Centers for Disease Control and Prevention updated its guidance on mask wearing on May 13 [th] , specifying that fully vaccinated people don't need to wear face masks indoors. Although there will be many instances where law will require even those who received the second vaccine dose two or more weeks ago to wear masks, ordering or enjoying your favorite coffee beverage at Starbucks won't be one of those instances.
Mixed latest earnings report
Fiscal second-quarter net income amounted to $659.4 million, or 56 cents per share, pretty much doubling from $328.4 million, or 28 cents per share from the same quarter last year. Excluding items, quarterly earnings amounted to 62 cents per share, beating Wall Street estimates by 9 cents a share, despite revenue falling short of expectations due to weak international sales. Net sales rose 11% as they amounted to $6.7 billion, coming below expectations of $6.8 billion. U.S. sales have recovered to pre-pandemic levels as they rose 9% whereas global same-store sales grew by 15% as the company lapped a decline of 10% from the year-ago period.
At the same time last year, same-store sales at home fell 3% as lockdowns took place across the US. But this quarter, customers bought larger and more expensive coffees while also adding food to their orders, fueling the average up 21%. Traffic, however, is still down by 10%. Interestingly, same-store sales rose 35% outside the U.S despite many European countries extending lockdowns.
International growth is key
Starbucks' second-largest market, China, saw same-store sales surge 91% compared to last year's quarter when they plummeted 50% . The business in China added nearly $500 million to to the sales table which translated to a 124% spike in revenue. However, most of that spike is due to the comparison with last year, which included maximum shutdown pressures in the face of the pandemic.
In its battle to bounce back from the effects of the coronavirus pandemic, it appears that Starbucks is now prioritizing international markets for growth the international segment now has 1,044 more stores compared to the same quarter last year.
For the fiscal year 2021, Starbucks plans to open a net of 1,100 new locations. It will emphasize international growth by opening 1,050 of the 1,100 internationally with approximately 600 of that total will be in China which isn't good news for Luckin Coffee Inc /zigman2/quotes/212253358/composite LKNCY -11.55% . Its international stores operate at a better profit margin at the store level, 55.2% versus 48.4% domestically. But Starbucks started this shift long before COVID-19 started its relentless march across the globe or more precisely, several years ago as it anticipated reaching saturation in the U.S. market.
As management believes customer traffic will soar as people prioritize reconnecting in person after social distancing for over a year, full-year outlook for revenue has been raised from the prior range of $28 billion to $29 billion to a range between $28.5 billion to $29.3 billion. Fiscal 2021 also includes a 53rd week, which is expected to add $500 million in revenue.
Starbucks is poised for growth
Back in April, CEO Kevin Johnson said the company has been positioned for the inevitable great human reconnection that we see unfolding in the U.S. and every market around the world and sharply improving operating trends confirm this optimistic outlook. The cashflow trend perhaps illustrates best how much stronger Starbucks has gotten compared to a year ago when COVID-19 strangled its business. As opposed to $474 million boost in the year-ago period, over the last six months, Starbucks generated $2.7 billion of operating cash. This figure implies management has plenty of resources to fund its ambitious plans for 2021 and beyond that rely on drive-through, digital ordering, and new drink and food platform launches. The coffee chain also plans to invest $1.9 billion into store remodels this year.
While the effects of the coronavirus pandemic were not devastating for Starbucks , they were definitely a headwind. Many of its popular coffee shops were closed at least temporarily for in-person seating, eliminating a lucrative source of revenue. Last year, the combined effects of the pandemic slashed operating profits by more than half YoY. But, Starbucks continued its store growth internationally as it opened five net new cafes during the quarter.
Although COVID-19 has not finished disrupting the lives of people worldwide, at least we are slowly getting some sense of normalcy we all longed for. Vaccination progress is key to predicting recovery and Starbucks is using its AI technology to predict the impact of vaccination rates on international sales growth. All in all, it seems that caffeine has kicked in and the coffee giant is now out of the woods.
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