Widespread store closures and limits on service to just delivery and drive-thru cost Starbucks more than half of its customer traffic last quarter.
The Seattle-based coffee giant on Tuesday said its U.S. same-store sales declined 42% in the company’s fiscal third quarter ended June 28.
All of that decline came in transactions. Comparable-store transactions plunged 52% in the period as customers came in more often. When they did, they made larger orders, but not nearly enough to make up for the lost traffic: Average check increased by 25%.
Yet Starbucks said that its same-store sales improved during the quarter and were down 16% by the end of the period, an improvement from a low of down 65% in mid-April. And the company said its U.S. business regained profitability.
Those stores that remained open, mostly the chain’s drive-thru locations, performed even better, generating 2% same-store sales growth in July, executives said on Tuesday.
“Our recovery plan is working,” CEO Kevin Johnson said on Starbucks’ fiscal third-quarter earnings call. “We saw meaningful improvements in both sales and profitability as the quarter unfolded.”
Starbucks' numbers echo results from several other fast-food chains that have seen customer counts decline while average check increases. They also reflect weakness in the morning—several chains have noted challenges in the morning as more Americans worked from home.
McDonald’s, for instance, said on Tuesday that its sales in the morning declined, yet the daypart is so weak overall that it actually gained market share.
For Starbucks, which depends heavily on commuters grabbing coffee and espresso drinks to and from work, the challenge was particularly acute. In addition, the company closed any restaurant that didn’t have drive-thru service before reopening them in May.
“Commuting to work and school is a headwind we are focused on across the U.S.,” Johnson said.
Yet company executives did note that how customers use the business has changed. Customers are coming in less often early in the morning but more often by mid-morning, and they’re also stopping by in the early afternoon.
Roz Brewer, Starbucks chief operating officer, said that the company has shifted labor to concentrate on those times of day. “We’ll be watching customer patterns very carefully,” Brewer said.
Company executives also highlighted their Starbucks Rewards members. The company said that it added 3 million more members in the quarter, up 17%, and mobile orders now make up 22% of sales.
Still, the steep sales declines cost Starbucks revenues and profits. Revenues declined 38% in the quarter to $4.2 billion. Starbucks also recorded a $678 million loss, or 58 cents per share.
Globally, same-store sales fell 40% and transactions declined 51%. The company said that the vast majority of its restaurants around the world are reopened. Globally, the company and its licensees operate more than 32,000 locations. That was up 5% from the same period a year ago.
Executives said on Tuesday they expect the company’s sales to recover by the end of next March in the U.S. Profit recovery should follow two quarters later.
“It’s very early to predict what next year is going to look like,” CFO Patrick Grismer said. “But we’re building operating plans that presume [those] levels of sales and profit recovery.”
UPDATE: This story has been updated to add comments and additional information from the earnings call.