By Tonya Garcia, MarketWatch
Starbucks Corp.’s fiscal first quarter was going well, and then the coronavirus hit.
The global coffee giant reported earnings that beat expectations and global same-store sales growth of 5%. The company planned to raise its guidance, but the outbreak in China stopped them.
“Given the strength of our Q1 results, we had intended to raise certain aspects of our full year financial outlook for fiscal 2020,” said Chief Executive Kevin Johnson on the late Tuesday earnings call, according to a FactSet transcript. “However, due to the dynamic situation unfolding with the coronavirus, we are not revising guidance at this time and as we get more clarity on the situation, we will transparently communicate with investors.”
Starbucks /zigman2/quotes/207508890/composite SBUX -1.71% said it has closed more than half of its stores in China, and changed all of its operating hours in the region in response. Starbucks has about 4,300 stores in China.
Starbucks had a 3% same-store sales increase in China during the fiscal first quarter, and a 1% increase in transactions.
Starbucks’ previously announced fiscal 2020 guidance, including global same-store sales growth of 3% to 4%, revenue growth of 6% to 8%, earnings in the range of $2.84 to $2.89 and adjusted EPS of $3.00 to $3.05.
The FactSet consensus is for same-store sales growth of 3.4%, revenue of $28.13 billion, implying a 6.1% increase, and EPS of $3.01.
Starbucks stock was down 2.8% in Wednesday trading.
Despite this tremendous challenge, Starbucks executives and analysts are positive about the company and the future.
“[W]e see strong fiscal first quarter results (prior to the coronavirus outbreak) as indicative of the strength of the underlying fundamentals, and view near-term stock weakness as an opportunity as we expect continued Americas strength and ultimately a recovery in earnings growth given the nature of the disruption (that is, not a company/brand-specific issue),” RBC Capital Markets analyst Christopher Carril wrote.
RBC rates Starbucks shares outperform with a $97 price target.
JPMorgan analysts agree that the coronavirus-related challenges in China are mitigated by the fact that they aren’t company-specific.
“This is not a Starbucks brand issue in any way, like we have seen in various cases in major markets where recovery cost/length is uncertain as consumer sentiment is negative on a brand-specific basis,” analysts said.