With just how fast the coronavirus is spreading even in the United States, where social distancing and working remotely has been strongly encouraged, it’s not surprising that many well-known companies in the food and beverage sector have seen their earnings plummet. That’s exactly what happened with Starbucks (NASDAQ:SBUX), which stated on Wednesday that the company’s earnings were cut in half due to the effects of the pandemic as fewer customers are stopping by to buy a drink.
In all fairness, this is completely understandable and didn’t come as a surprise to many investors. With many Starbucks stores having been closed indefinitely in some countries (such as Canada, where most of its locations are shut down) and fewer people dropping by for a cup of coffee to reduce the chance of getting infected, this announcement makes sense. Although a fair number of U.S. stores are still operating on a drive-thru or delivery basis, it seems like this state of reduced operations could quickly become the norm for the company going forward.
Starbucks said that it expects to see adjusted earnings of around 30 cents per share for Q2 2020, which would be a significant decline from the 60 cents per share seen in Q2 2019. “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. This includes inventory write-offs, honoring supplier obligations, store safety-related items, asset impairments and preliminary estimates of certain government stimulus program benefits,” stated the company.
That’s already worse than what analysts were expecting, even after factoring in significant reductions for the coronavirus. Wall Street, on average, had expected around 39 cents per share in earnings. Starbucks is currently scheduled to report earnings on April 28th, so investors will find out more about the company’s situation then.
As for the stock itself, Starbucks’ shares didn’t move that much in response to the news. Shares were up around 4% during the day before tumbling around 2% in after-hours trading. Like the vast majority of Fortune 500 companies, Starbucks has seen its shares tumble over the past couple of months in line with the broader markets.
It’s anyone’s guess as to when things will return back to normal. While some expect that businesses will open up again in June, especially since you can only shut down a vast chunk of the economy for so long, some medical data suggests that the coronavirus could continue to see infections well until August.
Starbucks Company Profile
Through a global chain of almost 31,800 company-owned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, food, and accessories. The company also distributes packaged and single-serve coffee, tea, juice, and pastries through its own stores, grocery store chains, and warehouse clubs under the Starbucks and Teavana brands under the Global Coffee Alliance partnership with Nestle. In addition, Starbucks markets bottled beverages, ice creams, and liqueurs through partnerships with Pepsi, Anheuser-Busch, Tingyi, and Arla. In fiscal 2019, Starbucks’ Americas segment (including the U.S.) represented 69% of total revenue, followed by the International segment (including China) at 23%, then channel development at almost 8%. – Warrior Trading News