Starbucks Sales in China to fall by 50%
Starbucks Corp expects its sales in stores opened for at least a year in China to drop by about 50%. The coronavirus could impact sales by up to $400M to $430M by the second quarter, reducing their prior expectations.
Expenses related to partner wages, benefits, and store operations continue as well as lost sales for the period. Costs in response to the epidemic also adds up. The impact could affect the business’s adjusted earnings by 15 cents to 18 cents per share.
In stock trading, shares slumped by more than 10% since the results for the quarter that ended on December 29, 2019.
COVID-19 Virus Causing Stores to Close
Last year, Starbucks opened more than 600 stores in China. In the wake of the outbreak, they announced the closing of more than half of their stores in the country. Moreover, they continue to monitor and modify the operating hours of all their stores in the market due to COVID-19.
They have taken a very sensible approach in handling the virus by temporarily shutting down its Chinese stores. They have also deferred some store openings in China for the fiscal year 2020 to next year.
On February 27, they noted that 85% of their stores in China were open for business. CFO Patrick Gismer said the company is not going to make up for the sales it lost when it closed stores. With the company being in top growth in the stock market, he is optimistic about things getting back on track.
Starbucks Strong Brand and Market Opportunity
The business has a strong brand and market opportunity, both domestically and internationally. Over 4,100 stores in China represent 13% of their world-wide total of company-operated and licensed stores.
The coronavirus hit them like it did with many other companies. However, this didn’t change their strong long-term outlook. They expect shares to go up again shortly as the fall is only temporary.
The coronavirus is not Starbucks-specific, and the largest coffee-chain has a high-growth market. In the United States, there are 15,000 of its company-operated stores nearly half of its total.
Grismer added the illness and the precautions people are taking to avoid it could result in lost sales. But even if that happens, he expects business as usual once the outbreak passes.
As of right now, 90% of the coffee giant’s Chinese locations are open. Its early recovery in China proves they are still one of the stocks with enduring competitive advantages.
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