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Starbucks second-quarter earnings to fall 46{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} as coronavirus hits sales

A worker uses a thermometer to check the temperature of a customer as she enters a Starbucks shop as the country is hit by an outbreak of the new coronavirus, in Beijing, China January 30, 2020.

A worker uses a thermometer to check the temperature of a customer as she enters a Starbucks shop as the country is hit by an outbreak of the new coronavirus, in Beijing, China January 30, 2020.

Starbucks on Wednesday announced that it expects its fiscal second-quarter earnings to be cut nearly in half as the coronavirus pandemic causes sales to plunge in its two largest markets.

The company’s stock fell 2{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in extended trading. Shares, which have a market value of $84 billion, have fallen 18{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} so far in 2020, as of Wednesday’s close.

Starbucks said it expects to earn 28 cents in the second quarter.

“This includes inventory write-offs, honoring supplier obligations, store safety-related items, asset impairments and preliminary estimates of certain government stimulus program benefits,” the company said.

On an adjusted basis, earnings per share will be 32 cents, down from 60 cents per share in the year-ago period.

The global coffee chain also withdrew its outlook for fiscal 2020, citing the “dynamic nature” of the coronavirus crisis. Its fiscal 2020 revenue was expected to rise between 6{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} and 8{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} and global same-store sales growth was forecast to be in a range of 3{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to 4{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}.

Starbucks said that U.S. same-store sales fell 3{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} during the quarter, “reflecting the very rapid onset of COVID-19 business impacts in the final three weeks of the quarter.” In the quarter up to March 11, U.S. same-store sales grew 8{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}.

But U.S. sales for the Seattle-based chain began to decline on March 12 and steadily worsened as it moved to serving only via drive-thru and delivery. In the last week of the month, same-store sales plummeted between 60{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to 70{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}. 

U.S. and Canadian employees will continue to be paid through May 3, even if baristas are not working. Employees who do work will receive an extra $3 per hour. 

In China, Starbucks’ second-largest market, same-store sales plunged 50{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} during the second quarter. The company cited temporary closures, reduced hours and the drop in customer traffic. Same-store sales have been improving since they plummeted 90{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in mid-February as the country slowly returns to a new normal. In the last week of March, same-store sales declined by 42{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in China.

“While all of these trends are positive and we are optimistic they will continue, future progress may not be linear and will be impacted by prevailing, external conditions and local safety guidelines,” CEO Kevin Johnson and CFO Pat Grismer wrote in a letter to stakeholders.

All told, Starbucks estimates that the disruption to its Chinese business related to the virus hit second-quarter earnings by a range of 15 cents to 18 cents.

The company also said that it is pausing its buyback program. Johnson defended the program in mid-March after the company’s board authorized the repurchase of up to 40 million shares. Starbucks does not foresee that it will reduce its dividend.

“Given our financial strength as an enterprise, we are confident that we will be able to maintain appropriate liquidity as we manage through the current crisis,” Johnson and Grismer wrote.

The coffee chain will report its full second-quarter results on April 28.

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