Starbucks expects to swing to a loss in its fiscal third quarter, predicting it lost as much as $3.2 billion in revenue due to the coronavirus pandemic.
Shares of the company fell more than 3% in early trading Wednesday. The stock, which has a market value of $92.6 billion, has fallen 10% this year.
Starbucks, which withdrew its prior outlook in April, is forecasting a net loss per share of 64 cents to 79 cents and adjusted losses per share of 55 cents to 70 cents for quarter ending June 28. But it expects that its fiscal fourth-quarter earnings will improve, predicting net income per share of 11 cents to 36 cents and adjusted earnings per share of 15 cents to 40 cents.
By the end of June, Starbucks expects weekly cash flow to be positive.
Its forecast for same-store sales growth is more grim. For the full fiscal year, the company expects same-store sales in its two largest markets — the United States and China — to decline 10% to 20%. It is forecasting flat same-store sales growth in China by the end of the fiscal fourth quarter and predicts U.S. same-store sales will remain negative.
“With each passing week, we are seeing clear evidence of business recovery, with sequential improvements in comparable store sales performance,” CEO Kevin Johnson and CFO Pat Grismer wrote in a letter to stakeholders. “The Starbucks brand is resilient, customer affinity is strong and we believe the most difficult period is now behind us.”
U.S. same-store sales tumbled 43% in May as the company reopened locations with modified hours and operations. By the end of the month, 91% of U.S. stores had been reopened. In the last week of May, same-store sales were down 32%.
About 95% of U.S. locations are open again, with the majority of closed locations located in the New York City area.
In China, same-store sales fell 21% in May, an improvement of April’s same-store sales declines of 32%. In the last week of May, same-store sales were down just 14% from a year earlier.
About 90% of Chinese cafes are back to their pre-pandemic operating hours, and 70% have full seating available. In April and May, Starbucks opened 57 net new stores in China.
New store openings have also resumed in the Americas. Starbucks now expects to open about 300 net new locations in fiscal 2020 in the segment, down from its prior estimate of 600.
The company also plans to shutter as much as 400 company-owned cafes over the next 18 months as part of its plan to accelerate changes to U.S. stores. As more customers order through Starbucks’ app, the company had planned to modify its cafes over the next three to five years, but the pandemic moved up that timeline.
Starbucks plans to add more pick-up stores in dense urban markets, like New York, Chicago and San Francisco. The chain opened its first mobile pick-up location in November in Manhattan’s Penn Plaza. Suburban cafes will get walk-up windows, curbside pick-up for mobile orders and double drive-thru lanes.
The coffee chain will also renovate some cafe layouts by adding a separate counter for mobile order pick-up from customers and delivery couriers at busy locations.
Starbucks said it amended its fixed charge coverage ratio covenant of its credit agreement for $3 billion of revolving lines of credit through the fourth quarter of fiscal 2021. As of Wednesday, it has not tapped any of those lines of credit.