Shares of international coffee giant Starbucks (NASDAQ:SBUX) are up 12% year-to-date, enough to push the stock to record highs. The company is benefiting from a wave of reopenings worldwide.
Still, there is room for it to go higher as the world is nowhere near putting the pandemic behind it. Many folks are still working and learning from home. Further, while vaccinations against the coronavirus are well underway in developed nations, they are only getting started in poorer countries.
Interestingly, over 60% of Starbucks’ 32,943 locations are in the U.S. and China. These countries are in the top tier of nations in terms of vaccinating their populations against COVID-19. As a result, they have been able to ease business restrictions and allow folks more things to do away from home.
As of March 28, Starbucks’ sales in the U.S. had recovered to pre-pandemic levels. And in its fiscal second quarter, sales in China rebounded by 91% from the same quarter the previous year. Unsurprisingly, economic reopenings are coinciding with sales growth at Starbucks.
CEO Kevin Johnson shared his optimism: “I am very pleased with our progress to date in fiscal 2021, as our second-quarter results demonstrated impressive momentum in the business with full sales recovery in the U.S. Our strong results validate our ability to adapt to changes in our environment and the needs of our customers.”
Not there yet
Still, there is a long way to go for the world to put COVID-19 behind it. And although many business and travel restrictions have been lifted, several remain in place. Thankfully, the production and administration of vaccines are accelerating, reducing the spread of the virus.
As the rollout of vaccines continues, Starbucks will be one of the beneficiaries. With more people vaccinated, businesses will start calling their workers back to offices. Perhaps on their way to work, folks will stop by a Starbucks to pick up a cup of Joe. That’s a part of the business that has yet to recover.
Further, after over a year of learning remotely, millions of students will be returning to college campuses later this year. Many campuses have a Starbucks location on site. A shot of espresso certainly helps when you’re studying for exams.
While Starbucks is already benefiting from economic reopenings, it still has room to grow. The next phase of recovery is likely to come from folks returning to offices, at least for part of the workweek, and students returning to campuses. Beyond that, there will be a further benefit when international travel restrictions are removed.
Importantly, the company made adjustments during the pandemic that will have positive impacts long afterward. For one, it enhanced its Starbucks rewards membership program to allow all members the privilege to earn points, not just those who pre-load cards. And Starbucks rebalanced its international store presence, shifting a greater percentage of locations overseas, where it derives larger store-level operating profit margin.
Despite the stock reaching record highs in July, it can continue to go higher. However, the risk remains that variants of the coronavirus are resistant to vaccines, and nations need to implement more lockdowns. Barring that, Starbucks looks to be steadily recovering lost ground.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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