Why Starbucks's Stock Just Hit a New High
Starbucks (NASDAQ: SBUX) is the world's leading coffee retailer. Not surprisingly, the company had an exceptionally difficult year due to the pandemic; temporary store closures and social distancing measures caused revenue to drop over 11% in fiscal 2020, and earnings fell even further, down 73%. Yet Starbucks's stock is up 17% year to date, outperforming the S&P 500, and it recently hit a new all-time high, which may have investors thinking the stock is overvalued. Here's why they're wrong.
In response to the pandemic, Starbucks closed all of its stores in April, with the exception of drive-thrus. As a result, same-stores sales dropped 14% and total transactions dropped 22% in 2020. Despite this, operating expenses were roughly flat compared to 2019. In other words, even though the company closed stores and served fewer customers this year, it cost just as much to run the business.
This was primarily due to COVID-19, which introduced new expenses like catastrophe pay, wage increases, inventory write-offs because of product waste, and other costs necessary to provide customers and employees with a safe in-store experience. As a result, the company's operating margin dropped from 15.4% in 2019 to 6.6% in 2020, which in turn caused profitability to plummet.
Source Fool.com
