Skip to Content
Stock Analyst Update

Q2 a Mixed Bag but Starbucks' U.S. Recovery Encouraging

Strength in the U.S. market was encouraging, and we modestly raise our fair value estimate.


Investors continue to sift through mixed results from wide-moat Starbucks' (SBUX) fiscal second-quarter earnings, with $0.63 non-GAAP EPS exceeding FactSet consensus of $0.53 but the top line missing estimates.

Strength in the U.S. market was encouraging, with 9% same-store sales growth clocking in at the upper range of guidance, but a protracted recovery abroad drove softness in the international segment, with a sequential revenue decline of 2.6% and an 8.5% drop in operating income. After digesting results, we are raising our fair value estimate to $107 per share from $106 and view the shares as modestly overvalued at current prices.

While international results and operating margin pressure caught the eye, they obfuscated an otherwise positive quarter, with Starbucks' U.S. segment seeing operating margins expand 2.1% from a quarter ago (to 19.4%), as impairment costs clocked in better than expected (a 1% impact, against 1.6% forecast) and product and distribution costs were lower than modeled. The firm is 70% of the way through its trade area transformation initiative, closing underperforming stores, retooling urban stores to increase the mix of smaller, more cost-efficient units, and indexing new unit openings to more profitable suburban drive-thru concepts. We appreciate management's opportunism amid the pandemic, with the strategy better positioning Starbucks to compete in a world where off-premises consumption and proximity to the customer are only likely to grow in importance.

Finally, we're encouraged by traffic normalization in the morning daypart, with management reporting positive two-year comparable sales as consumer mobility increased. While global recovery will continue to depend on local regulations and vaccine penetration, a return to growth in the U.S. (we project average store-level sales growing at a 4.6% CAGR between 2019 and 2021) is encouraging, with the end of the pandemic in sight for beleaguered restaurant operators.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Sean Dunlop does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.