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Financing

Starbucks hit with a rare sales decline as pandemic shuts stores

The coronavirus has cost it more than $900 million in revenue, and the company said things will get worse before they get better.
Photograph: Shutterstock

The global coronavirus pandemic has cost Starbucks an estimated $915 million in revenue as its stores closed around the globe and same-store sales declined for the first time in more than a decade.

Those numbers will only get worse, though executives expect things to begin to improve once stores start opening next week.

“We do expect the lower sales and increased investments to intensify” this quarter, CFO Patrick Grismer said on the company’s fiscal second quarter earnings call Tuesday, referring to higher pay and benefits for workers. “The impacts to revenue and operating income will be much more substantial, but we do expect these impacts to moderate.”

Same-store sales declined 3% in the U.S. in the quarter ended March 29 after sales fell off a cliff in the second half of March as the company closed half of its domestic locations. It was the first such decline for the powerhouse since early 2009.

Total revenues at the company declined 5% to just under $6 billion. Net earnings were cut in half, to $328.4 million, or 28 cents per share.

So far in April, U.S. same-store sales are down 25% in the stores that are open, company executives said Tuesday. With half of its stores closed, same-store sales are down in the 65% to 75% range.

Company executives said its stores will begin reopening in the U.S. next week, with about 90% of its company locations to be open by June. Those stores will be reopened with modified service styles. The cafes will be closed, with orders shifted to delivery and mobile order and pay and the company adding a new entryway handoff service. Starbucks also plans to test curbside service.

Starbucks believes it can recover U.S. sales in part because 80% of its orders before the coronavirus hit were for takeout. “By augmenting the in-store experience with mobile ordering, we can serve a significant amount of customers without having the cafe seating area open,” CEO Kevin Johnson said.

The company said it plans to reignite some of its marketing next week, including some of the spring marketing it had delayed due to the shutdown. Those efforts could include a beverage lineup and a focus on its digital customer relationships. “We do have a marketing plan scheduled as we open next week,” Chief Operating Officer Roz Brewer said.

Executives are expecting a longer recovery in the U.S. than in China. Same-store sales in China began declining late in January when that country shut down much of its economic activity.

China same-store sales for the full quarter declined 50%, but were down 90% during one week in mid-February. They improved as the quarter went on and the market reopened. In April, they were down 35%, and the company expects a “substantial recovery” there by this fall.

The recovery in the U.S. could stretch into next fiscal year, which starts in October. Starbucks would not give investors any earnings forecasts outside of China, given the uncertainty of the recovery in its largest market.

But executives also stressed its China experience gives it faith that its sales will recover domestically as restrictions are lifted. It also says it can leverage the relationships it has with members of its Starbucks Rewards loyalty program, which topped 19 million members, up 15% from last year.

Executives are also stressing the performance of the chain’s drive-thrus, which are generating strong business through the shutdown—about 75% of stores’ typical revenue.

Still, with half of Starbucks’ company stores closed and recovery still far off in China, the company is burning through a lot of cash. The company said it was burning through $125 million in cash per week, though it expects that to shrink as stores open and more customers return.

But the company feels strongly enough about its finances to pay investors a dividend.

“We’re comfortable with overall liquidity,” Grismer said. “We’re well-prepared to manage current operating conditions from a cash flow perspective.”

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