The year 2020 started strong for Starbucks, CEO Kevin Johnson noted in his call with investors after the firm’s second-quarter earnings hit the wires Tuesday (April 28).
But as the coronavirus crisis spread outside of mainland China and became a worldwide phenomenon in the final few weeks of quarter, Starbucks’ earnings took a sharp hit, which is likely to deepen in Q3, according to Starbucks’ current forecasts.
Despite the rough ride results-wise and continued turbulence predicted for the short run, however, Johnson also noted that he remains optimistic for the firm’s full year performance and confident that its investments in technological innovation leaves it well situated to find “new and innovative ways to serve communities, prioritize safety” for associates and customers and “exceed public health requirements” as it embarks on a phased reopening within the next 60 or so days.
"We are leveraging our experience in China to inform our actions in other markets, including the U.S. where we are now entering the 'monitor and adapt' phase to reopen many more stores with best-in-class safety protocols,” Johnson told investors, according to a press release.
He said on the call that the current plan calls for a reopening of 90 percent of its locations by early June.
That would be a major reversal for the coffee chain and digital services innovator. Starbucks has closed 50 percent of its U.S. locations since early March, with those that remain open being restricted to drive-thru and/or curbside service. And, given the rocky road the brand has traveled in Q2, a turnaround is likely exactly what Starbucks would like to see and as soon as possible.
During Q2, Starbucks reported net income of $328.4 million, or 28 cents per share, down from $663.2 million, or 53 cents per share, the year prior, according to a CNBC report. Adjusted earnings clocked in at 32 cents per share, down by nearly 50 percent from a year ago. Apart from widespread closures and restrictions, hazard pay for baristas, hourly pay bumps and equipment and safety upgrades for stores were among items taking a bite out of profit during the quarter.
Revenue, meanwhile, also took a hit, dropping 5 percent year on year to $6 billion, an estimated loss of $915 million in sales during the quarter due to store closures, reduced operating hours and lower customer traffic resulting from the pandemic.
All in, Starbucks split on analysts’ forecasts, coming in below predictions for earnings per share of 34 cents, but slightly ahead of analysts’ calls for $5.89 billion in revenue.
In other crucial figures, global same-store sales declined by 10 percent, while transactions overall were down 13 percent. That, Johnson noted, was largely driven by Starbucks near shutdown in mainland China during the early part of the quarter, followed by the start of similar measures in the U.S. in the waning weeks of Q2. U.S. sales were down 3 percent during the time period, while Chinese comparable stores sale dropped a staggering 50 percent. China, however, has started to see marked improvement as stores have been reopening since late February and are approaching nearly 100 percent open in the nation.
That doesn’t mean there won’t be declines, however. Starbucks is currently predicting that same-store sales in China will decline between 15 percent and 20 percent in fiscal year 2020 — although the country is seeing the early signs of a rebound today. But those efforts are slowed by the fact that roughly 98 percent of Chinese locations are operating under modified hours with enhanced safety protocols.
But as Johnson noted, those measures have been successful in China and have left the firm confident that it will be able to open the vast majority of its U.S. locations in at least some capacity by early June.
“We are well-positioned to leverage our digital assets and new operating formats like contactless pickup and curbside to expand service to customers,” he told investors. “And our focus on the customer experience, beverage innovation and digital differentiates Starbucks and will enable us to regain the momentum we had prior to COVID-19.”
That will be accomplished, he noted, through continual improvements to the firm's digital capabilities as well as a variety of reconstructions and reimaginings of the store formats.
“We understand there's much more to do and that we must be agile as the world navigates COVID-19 and works to create a vaccine,” he said on the earnings call. “We have a very clear path going forward. We are optimistic about the future and we believe Starbucks will emerge from this experience even stronger, more determined and more focused than ever before.”
The chain’s stock price fell by about 1 percent in after-hours trading.