For long-term investors, Starbuck Corporation (SBUX) has long provided the portfolio caffeine kick they were looking for. Since 2002, shares in the ubiquitous coffee monger have returned over 1,250%, thoroughly trouncing the S&P 500 over the same period.

SBUX: Growth Since 2002

The Seattle, Washington based coffee purveyor is the worlds largest coffeehouse chain, operating over 30,000 locations in more than 70 countries worldwide. In fact, much of the growth in Starbucks shares over the historical period has been driven by the company’s expansion into international markets and its efforts to provide customers with a variety of in-home beverage options like ground coffee and tea. This global expansion has fueled spectacular long-term growth, with the company reporting approximately $25.5 billion in net revenues in 2019, up over 600% since 2003.[1] Coupled with strong ratings in Value, Profitability, and Scalability driven by a strong price to sales ratio, a 13% profit margin, a 12% return on assets, and historically strong revenue growth, its easy to see why Starbucks has been a long-term investor favorite.

SBUX: EEON RATING SCORE CARD

However, Starbuck’s strategy of expansion into new, global markets and consumer goods has shown signs of losing steam, with shares trailing the S&P 500 since early 2019. Could this be a sign that Starbuck’s has begun to reach the limits of international expansion and has joined the ranks of more mature, slow-growing food service organizations?

SBUX: 2019 & 2020 Performance Chart

Notably, Starbucks posted sharp declines in both Net Revenue and Net Income for the first quarter of 2020 as the emergence of COVID-19 as a global threat has decreased the number of commuters looking for their daily caffeine fix and forced Starbuck’s to shift to a drive-through only model in many of their locations. These developments catalyzed a sharp decline in Starbuck’s share price in late-winter/early-spring 2020.

SBUX: 3 year Income & Revenue Trends

Although shares in the company have recovered from their March 2020 lows along with the broader market and some stores have resumed take-out service, questions remain about the potential long-term impacts of the ongoing coronavirus on coffee-seeking commuters, the viability of providing safe take-out service, and the willingness of the average consumer to purchase premium coffee during a time of broad economic distress. Additionally, investors looking at the company’s recent performance relative to the S&P 500 are naturally wondering if a company as large as Starbucks can continue to grow as rapidly as it has historically without a dramatic retooling of its business strategy.

SBUX: 6mo Performance Chart

Investors weighing whether to add to or liquidate their position in Starbuck’s would do well to consider the likely implications of the pandemic on Starbuck’s relatively mature business model. The company announced in June of 2020 that it plans to close approximately 400 stores across the US and Canada over the next 18 months, while increasing the number of take-out and pick-up only locations, illustrating the Starbuck’s leadership anticipates long-term shifts in consumer behavior.[2] If Starbuck’s management is not able to successfully lead the organization into the post-pandemic era, they risk letting Starbuck’s historical hot streak run cold.


[1] Source: Statista: Starbucks Net Revenue 2003 to 2019

[2] Source: Starbucks June 10th, 2020 Form 8-K


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