- While Starbucks was still profitable in fiscal 2020, earnings per share declined more than 70% YoY.
- Starbucks will probably have to modify its business model and focus more on drive-thru and on its Channel Development segment.
- Starbucks seems overvalued at this point and history tells us that high-quality companies can also underperform for several years.
Starbucks (SBUX) was certainly one of the companies that was affected quite heavily by the pandemic: Store closures starting in China and then expanding to almost all countries all over the world hit the top and bottom line quite hard. People working from home and commuting less can also be seen as negative for Starbucks’ business – as many coffee shops are in districts where people pass by on the way to work or for lunch hour.
In my last article in April, I already discussed the short-term negative impacts from COVID-19 as well as the stability of the business. In this article, we will discuss once again what the disruption caused by COVID-19 might mean for Starbucks’ business. Following that, we will look at the dividend, the balance sheet and calculate an intrinsic value once again. We will end by looking at the history of the stock to demonstrate that even great businesses can underperform for some time.
Fiscal 2020 – Mixed Results
Starbucks was affected quite heavily by the pandemic and this is reflected in the results of the last three quarters as well as in the fiscal 2020 results. For Starbucks, the fiscal year ended on September 27, 2020, and the company reported $23.5 billion in revenue – a decrease of 11.3% from $26.5 billion a year earlier. Global comparable store sales declined 14% – driven by a 22% decrease in comparable transactions, partially offset by a 10% increase in average ticket. The decline in comparable store sales was offset a bit by about 4.5% increase in net stores. Diluted earnings per share decreased from $2.92 in 2019 to $0.79 in 2020 – reflecting a particular steep decline of 72.9%. Gross margin dropped from 28.2% in 2019 to 21.5% in 2010 and operating margin decreased from 14.8% in 2019 to only 6.5% in 2020.
