COVID-19 is disrupting the retail industry. Retailers are closing stores, laying off employees, and radically restructuring their business models to suit the digital economy. Starbuck’s (NASDAQ: SBUX) slump in growth during the pandemic gives investors an insight into the suffering retail industry. Starbucks has fought hard to make coffee and SBUX inextricable. The question on every investors mind is whether they can keep the strong bond between coffee and the business intact in the evolving future?

Today we are discussing why SBUX is declining, Starbucks COVID-19 recovery plan, and whether the coffee giant is worth the investment?

 

Why is SBUX declining?

Investors are selling SBUX shares due to worse than expected financials for FY 2020. Starbucks is expecting a loss of sales of around $US3.2 billion this quarter. On Wednesday, the company announced that its shares would suffer a loss of 55 to 70 cents per share when they release earnings for this quarter. The announcement included an expected decline in operating income of $US2.2 billion in the period.

In the US, Starbuck’s comparable sales plummeted by 43% in May. However, SBUX is slowly starting to see improvements as around 95% of their US stores are back on their feet. Also, in China, their operations are close to pre-pandemic levels, where 99% of their stores are open. After the announcement, on Wednesday, their shares fell 4.7%.

 

How does Starbucks look to bounce back?

Starbucks is planning to quicken their new “pick-up” store concept. Starbucks pickup is essentially little coffee stations where customers can order via there phones. Just think of a grab coffee and go transaction. Starbucks expects to roll-out “pick-up” over a three-to-five-year timeframe. However, rapidly changing customer preferences have caused them to adapt to the change quickly. Starbucks expects to open 300 and 500 stores in America and China, respectively, this year.

Is Starbucks worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area. 

Short answer: Yes. Starbucks is an excellent long-term investment.(opinion not advice)

Before the pandemic, Starbucks was soaring. The coffee behemoth posted a record $24 billion in sales during 2019, coupled with year on year sales growth of 8% and foot traffic up 4%. Essentially, Starbucks was successfully reeling in more people and turning them into paying customers. Thus as long as SBUX can recover from the COVID-19 carnage, then the impressive growth should resume.

COVID-19 is breeding the new wave of innovative, adaptive, and technologically adept retailers. Survival of the fittest at its finest. Starbucks is introducing Starbucks pickup to ensure they change with the changing times. The innovative store design should see the coffee mammoth post enormous growth in the years ahead. Ultimately, making the disappointing H2 2020 financials nothing more than a speed bump.

SBUX’s pre-coronavirus momentum, introduction of Starbucks pickup, and their robust reputation should drive post-pandemic growth. Thus, I would say the coffee giant is a great long-term investment (opinion not advice). It seems the 6% growth in the past day reflects long-term investors capitalising on a discount.

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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Written by Jaewon Jung, Associate of YIG.

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