Starbucks Revokes 2020 Guidance on Coronavirus Concerns

Starbucks Corporation SBUX recently withdrew fiscal 2020 guidance on account of the coronavirus pandemic. The company also provided preliminary second-quarter fiscal 2020 earnings. Starbucks anticipates second-quarter earnings to decline sharply due to the coronavirus outbreak.

Following the news, the company’s shares fallen 2.2% in after-hour trading session yesterday. Moreover, shares of the company were down 20.6% in the past three months, compared with the industry’s decline of 22.7%. The downside can primarily be attributed to coronavirus pandemic.

Q2 China & U.S. Sales Trend

Although sales in comparable store sales in China are likely to decline sharply in second-quarter, the company is witnessing recovery in sales trend. In February, China comparable stores sales plunged 78%. However, in March comparable stores sales recovered at a slightly faster pace and the company witnessed a decline of 64%. Moreover, in the last week of March sales declined 42%, representing seventh straight week of sequential improvement. More than 90% of its stores in China are currently operational. However, many are operating with reduced hours and limited seating.

Before coronavirus-induced crisis in the United States, the company had been witnessing robust sales growth for almost four years. Quarter to date through Mar 11, U.S. comparable store sales were up 8%. After Mar 12, comparable store sales declined sharply as the company temporarily closed more stores. Comparable store sales in the United States were down 3% year over year, in second-quarter.

 

Preliminary Q2 EPS

Owing to business disruption in China on account of the coronavirus, the company’s GAAP and non-GAAP earnings per share for the second quarter are likely to be impacted in the range of 15 to 18 cents, in line with its prior estimate. Moreover, the company’s earnings are likely to be affected by coronavirus in the United States and other part of the world.

Owing to the aforementioned factors, the company’s adjusted earnings in second-quarter fiscal 2020 is estimated to be 32 cents, down sharply from the prior-year quarter adjusted earnings of 60 cents. The Zacks Consensus Estimate for the quarter is currently pegged at 45 cents.

Other Updates

The company has a very strong balance sheet, which will help it tide over the coronavirus crisis. At the end of the second quarter, the company had approximately $2.5 billion of cash and cash equivalents.

The company, which is scheduled to report earnings on Apr 28, has also withdrawn its fiscal 2020 guidance.

The company currently has a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks worth considering in the same space include BJ's Restaurants, Inc. BJRI, Denny's Corporation DENN and Potbelly Corporation PBPB. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BJ's Restaurants, Denny'sand Potbelly have an impressive long-term earnings growth rate of 15%, 9% and 17.5%, respectively.

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BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
Starbucks Corporation (SBUX) : Free Stock Analysis Report
 
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