Starbucks Issues Earnings Warning, Trims China Business View

Starbucks Issues Earnings Warning, Trims China Business View
March 9, 2020

 

Starbucks Corporation (Nasdaq: SBUX) is the latest publicly listed company to issue an earnings warning while slashing its outlook for China as the country grapples with the coronavirus outbreak. The coffee chain has already stopped opening new stores in China, following the reports of the COVID-19 outbreak. In fact, the company has postponed some of its shop openings, earlier scheduled for this year, to 2021. Following the news of earnings warning, the stock closed at $75.34, down $0.85 or 1.12% from the prior close.

Across the world, Starbucks’ business operations in South Korea, Italy, and Japan have been affected by the shutdown of shops and minimized client traffic. About its U.S. operations, Starbucks stated that the positive momentum in the country’s retail services over the past few quarters has sustained in the second quarter.

Regarding the impact of coronavirus on its U.S. business, Starbucks said: “To date, there are no perceptible signs of COVID-19 impact on our U.S. business, which accounted for approximately 65 percent of total consolidated revenues in the first quarter of fiscal 2020.”

Over 50% of Starbucks stores in China were partially shut down as of January 28th, while the rest of the shops operated for reduced hours. Early last month, roughly 80% of Starbucks shops were shut down due to coronavirus related unintended shutdown and scheduled lockups in celebration of the Chinese New Year holiday.

Currently, over 90% of stores in China are open but functioning with increased safety rules. Starbucks anticipates opening roughly 95% of stores in the country by the end of 2Q20. For the second quarter, Starbucks now expects COVID-19 in China to have a negative effect on GAAP and adjusted earnings in the range of between $0.15 per share and $0.18 per share. The estimate mirrors lost sales and sustained costs associated with store operations, partner wages, additional benefits, and other expenses.

The company has also estimated that coronavirus has caused a revenue loss of $400 million to $430 million from China in the current quarter. In the first quarter ended December 29th, Starbucks had generated sales of $745 million in China.

Additionally, Starbucks now anticipates comparable-store sales in China to decline by roughly 50% in the second quarter compared to the earlier year. Before the virus outbreak, China Comp sales were anticipated to be approximately 3% in the quarter, in accordance with first-quarter results.

Last month, Starbucks China’s same-store sales declined by 78%. Nevertheless, the company stated that it is looking at early indications of a rebound with successive increases in weekly revenues.

The company also disclosed that average daily transactions per store increased 6% in the final fiscal week of February, compared to an earlier week. Likewise, aggregate weekly gross sales in China increased by 80%, mirroring the reopening of shops. During that period, mobile orders in China represented roughly 80% of the sales mix.

Regarding the situation in China, Starbucks issued the following statement: “While the current situation in China continues to be dynamic, we believe that the financial impacts of COVID-19 are temporary, and we remain confident in the strength of the Starbucks brand and the long-term profitability and growth potential of our business in China.”

The earnings warning and trimming of the outlook for China has turned the stock bearish.

The historical price chart indicates that the stock has formed a double top at 95 levels. The next major support is anticipated only near 60. Additionally, the stochastic RSI indicator is in the bearish region. Therefore, we can expect the stock to remain in a downtrend in the short-term.

sbu - technical analysis - 9th March 2020

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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