Starbucks Q2 Earnings Fell Below Forecast, Greater Impact Is Likely in Following Quarters

Starbucks issued lower than expected results for the second quarter due to business disruption in China on the coronavirus epidemic.

The lockdowns in the U.S. and Canada have also forced the company to withdraw its full-year revenue and earnings forecast with expectations of the greater impact of lockdowns and health crisis on its third and fourth quarter numbers compared to the second quarter.

Its share price bounced back sharply from lows that it had hit last month as the company announced to sustain dividends despite massive disruptions. The shares are currently trading around $70 after bottoming around $55 a few weeks ago. However, the Starbucks shares are still down 19% year to date. 

Starbucks is working on the strategy of saving cash through delaying capital expenditure and suspending its share buyback program. It has recently increased the quarterly dividend by 14% for this year after returning $12bn to investors in 2019.

Its second-quarter earnings per share came in at $0.32 compared to the consensus estimate of $0.39 per share; the business disruption in China on health crisis hurt Starbuck’s results by $0.15-0.18.

Although its US comparable sales increased at a high single-digit rate during the first two months of this year, the rapid spread of COVID-19 has significantly impacted business operations in the final three weeks of the quarter. Its US comparable store sales declined 3% year over year in the second quarter.

Starbucks management was expecting global comparable-store sales growth of 3% to 4% for full-year along with the plan of opening 2,000 net new stores globally.

The market pundits are expecting a tough time ahead for Starbucks in the coming months as people will avoid frequently visiting stores due to the threat of coronavirus.

JPMorgan has provided a price target of $55 for Starbucks stock, warning that consumer habits in the U.S. could take a long time to return back to normal.