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Starbucks sales slump due to Covid19, loses over $3 Billion

Even as stores began to reopen, the coronavirus pandemic has continued to weigh heavily on sales at Starbucks.The coffee chain on Tuesday reported a net loss of $678.4 million, or $0.58 per share, during the quarter ended June 28, largely due to the negative impacts of the pandemic. 

The main aim of Starbucks is to become the leading brand and retailer of finest coffee in each of its target markets nationally and internationally by selling the best quality coffee and related products, and by providing high class customer service. Starbucks purchases and roasts a high quality whole bean coffees to sell them with fresh, rich-brewed espresso beverages, different varieties of pastries and coffee related accessories and equipments. Moreover Starbucks also sells coffee and tea products strategically through other channels such as supermarkets and non traditional retail channels such as United Airlines, Marriott International, Barnes & Noble bookstores and Department stores.

Starbucks (SBUX) revenue declined 38% from the same period in the prior year to $4.2 billion. Still, the company’s earnings were somewhat ahead of what Wall Street had expected. The company’s stock jumped more than 5% in after-hours trading Tuesday.

Starbucks’ Statement

The coronavirus is still weighing on Starbucks Corp., but the coffee giant expects to narrow its losses as the pandemic marches on.

The coffee giant on Tuesday reported its steepest earnings per share losses in more than a decade as a result of lower sales and higher costs stemming from the pandemic. Global same-store sales plunged by 40% in the quarter ending in June, and the Seattle-based chain reported a loss of $704 million, down around 17% from a year earlier.

Starbucks said Tuesday that most of its company-operated stores had reopened as of the end of the quarter, including 96% of US stores, following closures earlier this year caused by the pandemic. The company said most reopened stores have modified hours and limited seating.As of its last earnings call in April, about half of the company’s US stores remained closed.The company said at the time it planned to have 90%of its US company-owned locations operating by June.

“We are pleased to share that the vast majority of Starbucks stores around the world have reopened and our global business is steadily recovering, demonstrating the relevance of the Starbucks brand and the trust we have built with our customers,” CEO Kevin Johnson said in the Thursday release.

Sales and Dividend

Renewed surges of coronavirus cases in many parts of the United States may be hampering progress. Even in places where Starbucks has reopened stores, customers may not feel comfortable sitting inside to enjoy a cup of coffee.The company reported a 41% decline in comparable store sales and a 53% drop in the number of transactions during the quarter in the Americas region, compared to the year-ago period. One bright spot: while the total number of transactions declined, customers in the Americas spent, on average, 27% more on each order during the quarter.Starbucks’ operating margin for the period was -16.7%, which it attributed to coronavirus-related costs such as hazard pay and retail partner support, as well as a restructuring of its US store portfolio.

In June, Starbucks announced plans to close 400 stores in the United States and Canada over the next 18 months, while adding a number of carryout and pick-up only locations, a sign of the lasting effects of changes the pandemic ushered in.”The company plans to launch curbside pickup in several hundred existing locations in the near future and add over 50 Starbucks Pickup locations in the next 12 to 18 months,” Starbucks said in its Thursday release. “Both formats naturally allow for mobile ordering and physical distancing to meet evolving customer preferences that have accelerated because of COVID-19.

“CFO Patrick Grismer said Starbucks expects to return to profitability during the current quarter, though the company projects global comparable store sales will decline between 12% and 17%.

The company’s board declared a cash dividend of 41 cents a share, payable Aug. 21 to shareholders of record as of Aug. 7. Starbucks said it plans to launch curbside pickup in several hundred existing locations in the near future and add over 50 Starbucks pickup locations in the next 12 to 18 months to meet “evolving customer preferences that have accelerated because of COVID-19.” Shares had ended the regular trading session down 2.4%. 

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Shaheer is passionate about living a life seeking un-ending knowledge, philomath, as you may think of him. He's a student of Finance and a keen observer of Business and Indian-Political scenario who takes pleasure to pen down his views and opinions on the same. As his guiding mantra to life, ‘Come what may , life goes on’ helps.

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