Starbucks (SBUX) is moving into FY2021 with a strong plan in hand

Starbucks Corp. (NASDAQ: SBUX) did not have a smooth year in 2020 as the onset of the COVID-19 pandemic caused store closures resulting in the loss of sales. The company’s total revenues fell 11.3% in FY2020 mainly due to lost sales related to the pandemic. Lost sales amounted to approx. $5.1 billion during the year.

Despite these setbacks, Starbucks is optimistic going into fiscal year 2021 and appears to have a strong plan in hand looking at the updates provided by the company earlier this month during its Investor Day.

Market opportunity

The coffee market is a large category with significant growth potential. Based on estimates by Euromonitor, the coffee addressable market stood at roughly $360 billion of revenue worldwide in 2019. This is estimated to grow at a CAGR of 5-6% to reach revenues of roughly $450 billion globally in 2023. In other words, the coffee addressable market is projected to grow about 25% by 2024 from current levels.

Expansion

During the fourth quarter of 2020, Starbucks opened 480 net new stores, yielding unit growth of 4% year-over-year. At the end of the period, the company had 32,660 stores worldwide, with stores in the US and China comprising 61% of its global portfolio.

Starbucks expects its US stores to expand by around 800 gross new stores each year. The company sees significant expansion opportunity in regions with less penetration through high-volume, high-margin suburban drive-thrus.

Starbucks is transforming its store strategy by adding services like curbside and pickup to increase convenience. The company expects to expand these services to nearly 45% of its US portfolio by 2023, up almost 10% from FY2020.  At the end of the fourth quarter, Starbucks had 19.3 million 90-day active members in its digital ecosystem, with 50% of revenue driven by these customers as one in four transactions come from mobile order and pay. The company’s addressable customer base stands at nearly 75 million.

New products

Starbucks’ cold beverages platform has seen strong momentum, growing nearly 45% in the past four years. It is estimated that millennials and Gen-Z-ers under 30 are two times more likely to drink cold coffee, which provides the company with good opportunity as it plans on bringing out its new shaken iced espresso this spring. Cold beverages drove more than $1 billion in sales over the past three years.

The company’s innovation with non-dairy products such as almond milk, oat milk and coconut milk as well as its sugar-free options helps it reach out to customers who are health-conscious. Health-conscious customers represent 26% of the customer base and is a rapidly-growing segment.

Outlook

For FY2021, Starbucks expects GAAP EPS to range between $2.34-2.54 and adjusted EPS to range between $2.70-2.90.

Click here to read the full transcript of Starbucks Q4 2020 earnings conference call