SBUX Starbucks Corporation

By Heather Haddon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 29, 2020).

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 an operating-income loss of $704 million.

But that was better than many analysts expected given the severity of the blow the pandemic has dealt to Starbucks, first in China, then across Asia, Europe and the U.S. The chain said it expects the worst effects of the virus to moderate in its current quarter and believes same-store sales will recover in the U.S. and China by its next fiscal year.

The chain hopes to have opened hundreds of stores by the end of its fiscal year. Same-store sales are improving as the crisis continues, executives said.

Shares of Starbucks rose 6% to $79 in after-hours trading.

Big chains have generally performed better than independent restaurants during the pandemic due to their drive-throughs and established takeout operations. But chains have also notched big sales hits. McDonald's Corp. on Tuesday said its same-store sales fell 24% globally in its most recent quarter, and it expects the virus and resulting economic downtown to depress consumer spending for some time.

Starbucks was early among chains to close stores as a result of the coronavirus and to pay employees bonuses or allow them to stay home if they weren't comfortable working during the pandemic. It said it lost $3.1 billion in sales during the third quarter due to store closures, limited hours and fewer customer visits.

Starbucks said 96% of its company-owned U.S. stores are now open with at least to-go and limited dine-in service. The company has beefed up delivery and pickup services that it intends to keep. It also is building more to-go-only stores in the U.S.

Executives said more customers have shifted purchases to suburban locations from urban ones as traffic remains light in commercial corridors. Average orders are also up 25% as more customers get drinks and food for their families during the pandemic. Packaged coffee sales are also up for Starbucks as workers remain at home.

"I believe this is one of those rare opportunities to move aggressively and further differentiate Starbucks from our competition," Chief Executive Kevin Johnson told investors.

The coffee chain said it expects global same-store sales declines of 12% to 17% for its fourth-quarter and full year and for revenue to decline by 10% to 15% compared with the previous quarter. Starbucks said it expects earnings of 6 cents to 21 cents a share for its fourth quarter.

For the third quarter, spending on worker pay, benefits and protective equipment hurt margins. Starbucks said it spent $350 million during the quarter on virus-related benefits and pay for workers, royalty deferments for international licensees and payments to suppliers needing a cash infusion.

The company said it had $4.2 billion in sales in the quarter, down 38% from the prior year's period but better than expectations of analysts' polled by FactSet.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

July 29, 2020 02:47 ET (06:47 GMT)

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