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Starbucks Corp. SBUX, -6.67% says COVID-19 drove down U.S. same-store sales during fiscal second quarter, but drove up the size of the average order.
Breakfast chains like Starbucks took a hit when consumers began working from home, eliminating the morning ritual visit. However, Starbucks says the company has partially offset that loss with use of its digital capabilities and a shift in consumer behavior.
U.S. same-store sales fell 5%, with comparable transactions down 21% but average ticket up 19%.
See: Starbucks shares down 2% on drop in same-store sales
“[A] big reason for the increase in ticket is group ordering,” said Kevin Johnson, Starbucks’ chief executive, during the earnings call late Wednesday, according to FactSet.
“And certainly, as we have grab-and-go and customers are looking for safe, familiar convenient experiences, customers are coming in and they’re purchasing multiple beverages, multiple food items for larger groups in the past, which is why traffic is down and ticket is up.”
Johnson said food beat the company’s expectations with the Impossible Breakfast Sandwich and cake pops among the big sellers. The Impossible Breakfast Sandwich is made with product from plant-based Beyond Meat Inc. BYND, +4.48% competitor, Impossible Foods.
Also: Walgreens taps Starbucks exec Roz Brewer as its new CEO
Pumpkin Cream Cold Brew was among the popular coffee beverages, with a number of cold drinks growing in sales year-over-year.
Customers loyal to Starbucks also gave the company a boost, with half of sales at U.S. company-owned locations coming from Starbucks Rewards members, up from 43% the year before, and 47% the previous quarter.
Most analysts are cautious about the near-term given the ongoing uncertainty related to the coronavirus pandemic. But BTIG analysts note the improvements that Starbucks has recently experienced.
“Despite the limited seating and weak end to the quarter, same-store sales saw a material improvement in January with only a (2%) decline,” wrote analysts led by Peter Saleh.
“We believe the stimulus checks could have played a role in this recovery, and expect other restaurant brands to experience the same surge this month. Furthermore, we note that drive-thru locations posted slightly positive comps in the quarter, and accounted for about half of company store sales, suggesting in-line stores were down low-teens same-store sales. “
BTIG rates Starbucks stock neutral.
And there are signs the recovery is beginning.
“With many states having rolled back dining restrictions at the start of the year and California’s announcement yesterday to reopen outdoor dining, we believe the first two requirements for recovery are under way,” wrote Stifel analysts led by Chris O’Cull.
“Concerning sales driving initiatives, the rollout of Stars for Everyone last quarter meaningfully accelerated the addition of new users to the loyalty platform, with 90-day active user growth up 15% to the prior year.”
Stifel rates Starbucks stock buy with a $115 price target.
China has gotten fully back on track, the company said.
“It was just one year ago this week that we temporarily closed stores across China to protect partners and customers from coronavirus,” Starbucks’ Johnson said on the call.
“I’m proud to say today our business in China recovered in Q1 in line with our expectations and we remain on track to achieve full sales recovery of our U.S. business by the end of Q2.”
KeyBanc Capital Markets is optimistic about Starbucks’ future even if there are still coronavirus-related hurdles to clear.
“The company possesses a clean balance sheet and unique advantages in labor retention, marketing, and supply chain,” analysts led by Eric Gonzalez wrote.
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“And Starbucks should be well positioned to recoup guest visits as the country gets back to work by leveraging its best-in-class mobile app/rewards program, advertising scale, innovation capabilities, forward-thinking business mentality, and socially conscious brand.”
KeyBanc rates Starbucks stock sector weight.
Starbucks announced that its Rosalind Brewer, the company’s chief operations officer, would be leaving to become chief executive of another company. It was later revealed she would be leading Walgreens Boots Alliance Inc. WBA, +2.81%
Pat Grismer, Starbucks’s chief financial officer, previously announced that he would retire. Rachel Ruggeri will take on the role on Feb. 1.
Starbucks shares have risen 9.1% over the past year while the S&P 500 index SPX, -1.36% is up 16.8% for the period.
