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Starbucks SBUX is set to report its Q2 fiscal 2020 financial results on Tuesday, April 28, as earnings season continues to ramp up and put a spotlight on the coronavirus economic impact. Starbucks is one of many retail giants from Nike NKE to Apple AAPL that has closed many stores in the U.S. and beyond.
The Coronavirus Impact
Starbucks said earlier this month that the coronavirus reduced its quarterly sales projections in China by roughly $400 million. The company noted in an April 8 regulatory filing that its underperformance in the world’s second-largest economy was driven by a 50% decline in quarterly comps, “primarily due to temporary store closures, reduced operating hours and severely reduced customer traffic during the period.”
Wall Street was likely pleased to hear that the coffee powerhouse is starting to return to somewhat normal operations in China. “Each week, we see more evidence reinforcing our belief that the business will fully recover over the next two quarters.”
Despite a possible comeback in China, Starbucks looks poised to take a big hit in the U.S. after it moved to its “to go” model across the U.S. and Canada. SBUX also closed many stores amid the stay-at-home and social distancing push as millions of Americans work remotely. Starbucks hopes its mobile app, drive-thru services, and delivery offerings, through a partnership with Uber UBER Eats, will help it navigate the current turmoil.
Rivals like Dunkin' DNKN and McDonald's MCD have made similar moves to remove dine-in options. But higher-end Starbucks might feel the impact more than the likes of McDonald’s and it’s often a work-related and social purchase.
Starbucks provided some details, stating that “during the last week of the month, comparable store sales declines stabilized in the range of -60% to -70%, with 44% of U.S. company-operated locations operating, most under modified store hours, primarily through the drive-thru channel.”
Q2 Outlook & Beyond
Our current Zacks estimates call for SBUX’s second quarter revenue to fall 6.2% from the year-ago period to $5.91 million. And things look much worse for Q3, with the coffee power’s quarterly sales projected to tumble over 29%.
Overall, Starbucks is expected to see its full-year fiscal 2020 revenue to sink -9.6%. This would mark its first year-over-year decline since 2009, when its revenue dipped roughly 6%.
Meanwhile, its adjusted Q2 earnings are projected to tumble 48% to reach $0.31 a share. Its bottom-line is then expected to plummet 93.6% in Q3 to help push its fiscal 2020 EPS figure down 37.5%.
Starbucks said in the same April 8 filing that its earnings estimates “reflect the impact of lost sales for the period as well as incremental expenses for partner wages and benefits, store operations and other activities related to the COVID-19 outbreak. This includes inventory write-offs, honoring supplier obligations, store safety-related items, asset impairments and preliminary estimates of certain government stimulus program benefits.”
Investors can see in the nearby graphic how much worse SBUX’s earnings outlook appears, with its Q2 consensus down 47.5% and its Q3 figure 94% lower than its pre-coronavirus estimates.
SBUX shares have fallen around 13% in 2020 and currently hover roughly 20% off their 52-week highs. Starbucks stock did surge 6.5% on Wednesday, as part of a larger market comeback. Plus, news recently broke that Starbucks will begin to serve Beyond Meat BYND-based products at more than 3,300 of its stores across China.
SBUX stock might continue to climb if it posts better-than-expected results or provides solid guidance. However, things might get worse based on its rough near-term outlook that won’t fully show up until next quarter.
Starbucks dividend yield is solid and it is likely to return to growth when economies start to reopen. Therefore, longer-term investors might want to consider buying SBUX at its current price, even though it could fall again amid the continued coronavirus uncertainty.
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NIKE, Inc. (NKE) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Starbucks Corporation (SBUX) : Free Stock Analysis Report
McDonald's Corporation (MCD) : Free Stock Analysis Report
Dunkin' Brands Group, Inc. (DNKN) : Free Stock Analysis Report
Uber Technologies, Inc. (UBER) : Free Stock Analysis Report
Beyond Meat, Inc. (BYND) : Free Stock Analysis Report
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