Starbucks Corp. (NASDAQ: SBUX) has been among the great retail growth stories of the past decade and has boasted of being the best growth stocks. That has been and will be tested now. It has shuttered many stores and pushed customers to pick up rather than to order by standing in line at its locations. Part of the reason people go to Starbucks is to meet, both socially and for business.
Among the reasons Starbucks has started to be challenged is whether people want to buy unwrapped food that has to be handled by store employees. COVID-19 can be spread via one person who either comes in contact with an infected person less than six feet away or, in some cases, by touching things that infected people have handled.
As Starbucks closes stores and people are encouraged to get food and coffee “to go,” it comes up against a larger hurdle. Some people may completely avoid public places. Alternatively, the government may close all restaurants, which could include coffee shops.
Starbucks revenue as risen from $21.3 billion in fiscal 2016 to $26.5 billion in fiscal 2019. Over that period, net income has grown from $2.8 billion to $3.6 billion. Its store count has gone up by thousands in that time. Much of that is due to expansion in China, where the spread of COVID-19 has begun to abate.
Starbucks is among the largest employers in the fast-food economy. It employs 346,000 people. Most are paid low wages, which means their financial buffer in a recession is small or nonexistent. That means they almost cease consumer consumption in severe downturns.
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Investors have started to question which retailers and fast-food chains will completely disappear because of the virus outbreak. Starbucks certainly will not be among them. Its revenue will dip, and perhaps very sharply. It may even post losses in some upcoming quarters. However, it had $2.8 billion in cash at the end of the last fiscal year. It almost certainly has access to large lines of credit as well.
Starbucks may disappear in some places as a food and coffee destination. It will, for certain, be back when the virus spread starts to diminish.
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