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Financing

Starbucks says the China coronavirus outbreak will cost it up to $430M

Same-store sales in the country fell 78% in February, though 90% of stores are now open, and sales are improving as life slowly returns to normal.
Photograph courtesy of Starbucks

Starbucks’ same-store sales in China declined 78% in February due to temporary store closures, reduced store hours and falling traffic as a result of significant steps taken in the country to prevent the spread of the coronavirus.

The Seattle-based coffee giant said in a report Thursday that its same-store sales for the full quarter are expected to decline 50% in China, a country the company believes will be a major growth center in the coming years.

Starbucks said it expects there to be a COVID-19-related headwind of $400 million to $430 million in lost revenue this quarter versus its prior expectations. The company also said that it has “temporarily paused” store development in the country.

Starbucks said there have been “no perceptible signs of COVID-19 impact on our U.S. business,” which accounted for 65% of the chain’s revenues last quarter. Starbucks stock was up slightly in after-hours trading on the news.

“We are prepared to respond to any situation that may unfold in any of our markets around the world, leveraging the considerable operational insights we’ve gained from our experience in China,” the company said in a letter signed by CEO Kevin Johnson and CFO Patrick Grismer.

They added that Starbucks stores in Japan, South Korea and Italy have either been closed or hit with lower traffic. The company said that it could not assess the impact of those issues.

In January, the company told investors that half of its restaurants in the country were closed because of the coronavirus and that it was monitoring its stores’ operating hours.

Starbucks has gradually reopened its stores in the weeks since then and now has more than 90% of its 4,300 restaurants open in the country. But the company said it is operating under “elevated safety protocols.”

That includes limited lobby service, minimal seating and the use of its “contactless Starbucks experience,” using mobile ordering for pickup and delivery. The company said that varying levels of travel restrictions in China have led to low foot and vehicle traffic overall and the restaurants are open for fewer hours. Some stores are delivery-only.

Still, the company said, China “is showing early signs of recovery.” The company said that sales trends improved each week during February, and in the last week of the month, about 80% of its sales came via mobile orders, including 30% delivery.

Stores that remain closed, the company said, are concentrated in the Hubei province, where the COVID-19 outbreak was first reported. Locations in hospitals, universities, tourist attractions and cinemas also remain closed. But Starbucks said it expects 95% of its stores to be open by the end of the current quarter.

The company said it is doing daily temperature checks of its employees in China, who must wear masks at all times. Stores are set up with “safety stations” to check customers’ temperatures before they enter, and customers must also wear masks.

China has taken aggressive steps to limit the spread of the coronavirus since the outbreak was made public in January, including store closures and travel restrictions. More than 80,000 people in the country have been confirmed to have the virus. Globally, more than 93,000 cases have been confirmed.

Starbucks has already taken some steps domestically. It is holding its annual meeting virtually, for instance, and has stopped accepting customers’ own cups for their coffee.

Starbucks said its salaried and hourly employees were paid for hours scheduled before store closures. Those employees in need of financial assistance were given partial payment in advance for hours they committed to working in the future.

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