Starbucks expects China recovery by September as coronavirus seen easing

CORPORATE ACTION - SEATTLE. Starbucks Corp said on Tuesday it sees sales in China, the company’s biggest growth market, recovering by the end of September, following a massive drop in same-store sales in the current quarter on fallout from the coronavirus pandemic, which forced Starbucks to close stores around the globe. Shares of the world’s biggest coffee chain fell nearly 2% in extended trading.

Restaurant chains around the world have felt the impact of lockdowns spurred by the deadly viral outbreak.

Seattle-based Starbucks reported a 10% fall in global same-store sales for its fiscal second quarter ended March 29. Analysts had forecast a 9.71% decline, according to IBES data from Refinitiv.

Excluding one-time items, the company earned 32 cents per share, in line with Wall Street expectations.

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In China, where the coronavirus outbreak began late last year, Starbucks stores were closed for most of its second quarter, although 98% of China locations have now reopened. Those locations have modified schedules and extra safety measures, including limited cafe seating to maintain social distancing.

Starbucks forecast a drop in comparable sales in China in the current third quarter of between 25% and 35%, followed by a decline in fourth-quarter same-store sales of as much as 10% before ending roughly flat by the end of the fiscal year in September. For the full year, China same-store sales are seen decreasing 15% to 25%.

“People are going to look at that (China forecast) as an indication of what they may have to face in the U.S., since China got hit first,” said Tony Scherrer, director of research and portfolio manager at Smead Capital Management, which owns Starbucks shares.

Starbucks did not forecast sales for its U.S. business, citing the onset of the coronavirus outbreak late in the quarter, but said it expects the financial impact to be significantly greater in the third quarter and to extend to the fourth quarter.

About half of Starbucks’ U.S. restaurants are closed, and those that have remained open moved to a pick-up and delivery-only model in March to stop people from gathering.

About 90% of U.S. stores should be reopened by early June with extra safety protocols on a community-by-community basis, in a “thoughtful” way, Chief Executive Officer Kevin Johnson said in an earnings call.

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Smead Capital’s Scherrer called Starbucks “one of the best performers in restaurants and retail right now.”

International comparable sales in the second quarter fell 31%. More than 75% of company-run locations were closed in Canada, Japan and the United Kingdom.

Even so, Starbucks is on track to open at least 500 net new locations in fiscal 2020, after deferring up to 100 new store openings to next fiscal year.

The coffee chain also said it grew its Rewards loyalty program by 15% year-over-year in the quarter, to 19.4 million active members.