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Starbucks Foresees Revenue And Margin Recovery By 2021

Starbucks Foresees Revenue And Margin Recovery By 2021

Starbucks Corporation (NASDAQ: SBUX) fourth-quarter earnings and revenue took a hit due to the pandemic but the company still beat consensus. The company saw a faster-than-expected recovery in the U.S. and China, driven by average ticket growth.

What Happened: Global same-store sales declined 9% year-over-year in the fourth quarter compared to an expected decline of 11.7%, due to a 23% YoY fall in transactions, partially offset by a 17% rise in average ticket.

Same-store sales in the two biggest markets — the Americas and China fell 9% and 3%, respectively, partially offset by a 21% and 5% rise in average ticket.

The rise in an average ticket through the quarter stemmed from large orders as customers tended to load up on food and drinks during less frequent trips, reports the Wall Street Journal. Consumers are spending more on higher-priced cold beverages and plant-based options in delivery.

Starbucks said it lost $1.2 billion in sales in the fourth quarter from the impact of COVID-19, affected by modified operations, reduced hours, reduced customer traffic, and temporary store closures.

The adjusted operating margin contracted 400 basis points YoY to 13.2%.

"Globally, we expect operating margin in fiscal 2021 to improve significantly over the prior year, driven primarily by three tailwinds," CFO Patrick J. Grismer said on the company conference call

The tree tailwinds are sales leverage, absence of COVID-19-related expenses, and ongoing supply chain efficiencies.

Active membership in the U.S loyalty program grew 10% to 19.3 million, driving 47% of transactions, CNBC reports.

Key Highlights from Conference Call: Commodities will have minimal impact on product and distribution costs, said Grismer.

Overall, coffee needs are mostly price locked for fiscal 2021.

Starbucks expects higher interest expenses ranging between $470 million and $480 million in fiscal 2021, driven by $4.75 billion in debt issuance in the last eight months.

"The impacts of COVID-19 have resulted in the Company exceeding that leverage cap, we view these impacts as temporary, and we expect our leverage to return to near targeted levels in the latter part of fiscal 2021 as our operating cash flow continues to improve and we extinguish upcoming debt maturities," Grismer said.

The company expects 1,100 net new global store openings in FY 2021, with approximately 600 coming from China alone.

The mobile order sales mix has more than doubled in the last 12 months to 26% in Q4, with 13% coming from delivery.

Starbucks expects effective FY 2021 GAAP tax rates to be in the mid 20% range.

Price Action: SBUX shares closed 1.3% higher to $88.30 Thursday.


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