Starbucks Shares Fall As Q2 Earnings Halve Amid Pandemic

Starbucks Corporation SBUX announced Wednesday that its second-quarter earnings could fall by as much as half, as sales have been negatively impacted by the coronavirus pandemic in the United States and China, its two largest markets.

What Happened

Saying it has “greater visibility” regarding the impact of COVID-19 on its business globally, Starbucks claims it can better estimate its EPS for Q2 ahead of its earnings conference call scheduled for April 28. The company estimates preliminary earnings per share to be $0.28 in Q2, in Q2 2019, the EPS was $0.53. On an adjusted basis, the EPS is estimated to be $0.32 in Q2, lower by nearly a half compared with $0.60 in Q2 2019.

In its statement, Starbucks said, “These 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.” 

The estimates include inventory write-offs, honoring supplier obligations, store safety-related items, asset impairments, and preliminary estimates of certain government stimulus program benefits.

Why It Matters

Starbucks’ shares fell by more than 2% in after-hours trading and have fallen 18% in 2020 as of Wednesday’s close.

In the U.S., same-store sales have declined 3% during Q2 compared with the previous year. Starbucks said this is a reflection of the “very rapid onset of COVID-19 business impacts in the final three weeks of the quarter.”

In China, the other large market for Starbucks, the recovery continued at a faster pace through March after beginning in February. Sales fell 64% in March compared with a 78% decline in February. In the last week of March, same-store sales fell by 42%. 

Disruption to Starbuck’s Chinese operations will translate into a $0.15-$0.18 decline in terms of EPS, as of Q2.

Starbucks has withdrawn its outlook for FY 2020 due to the “dynamic” nature of the COVID-19 crisis and its effects on the company’s global business. 

The company had $2.5 billion of cash and cash equivalents on its balance sheet at the end of the second quarter. 

Price Action

Starbucks shares traded 2.19% lower at $70 in the after-hours session on Wednesday. The shares had closed the regular session 4.16% higher at $71.57.