Profits brewing?

Like most businesses, Starbucks (Nasdaq: SBUX) has suffered during the pandemic, with far fewer people grabbing refreshments on their way to or from work, and many indoor eating areas closed.

In the company’s last reported quarter, revenue declined 38.1 percent year over year; that was better than expected, as consumers offset a 51 percent drop in traffic with much higher order sizes, up 23 percent from last year. On its conference call with analysts, management noted an accelerating improvement in U.S. store trends, with a 65 percent decline in traffic in mid-april improving to a 16 percent decline in late June. Its recovery in China also exceeded expectations.

Starbucks isn’t standing still, waiting for the pandemic to end, either. The company recently unveiled a new store format for urban environments called Starbucks Pickup, which should greatly boost profit efficiency in expensive urban markets. It’s also rolling out a new curbside pickup experience at up to 1,000 stores this quarter, as well as a new handheld payment processor to increase throughput. Management expects a return to profitability this quarter.

Starbucks is certainly challenged right now, but the combination of its world-class brand, leadership in the digital arena and continuous innovation presents a promising opportunity for long-term investors. The company even pays a dividend, which recently yielded 1.9 percent. (The Motley Fool owns shares of Starbucks and has recommended Starbucks stock and options.)