Starbucks Signals Worst Is Past Following Quarterly Sales Drop

Starbucks Corp. capped its fiscal year with better-than-expected quarterly results as the key U.S. and Chinese markets inched closer to growth -- but didn’t quite get there. The shares jostled between gains and losses in late trading.

The coffee giant reported global same-store sales that were down 9% in the fourth quarter, better than the 11.9% drop analysts surveyed by Consensus Metrix were expecting. Although that marks the third straight quarter of overall declines, the size of the drops have abated since the spring, when much of the world was on lockdown. In the U.S., comparable sales fell 9%, beating expectations.

Starbucks is facing heightened scrutiny as it adapts its “third-place” business model -- which aims to give customers a place to hang out that’s neither work nor home -- in a pandemic world. While it has made progress in digital and takeout service, the company is proving more vulnerable to the new pandemic trends than other big restaurants, like McDonald’s Corp. and Domino’s Pizza Inc.

Starbucks Signals Worst Is Past Following Quarterly Sales Drop

Looking forward, however, Starbucks says it gets better from here: The chain forecasts global comparable sales will grow between 18% and 23% during the first quarter and 2021, with expected growth as high as 32% in China. The recovery at home will be a little slower, with comparable sales in the Americas rising between 17% and 22% in the first quarter and next year.

“Our strategies are working and I am optimistic that we will emerge from the Covid-19 pandemic as a stronger and more resilient company,” Chief Executive Officer Kevin Johnson said in an email.

Shares React

Shares erased earlier gains, falling 0.9% as of 4:41 p.m. in late trading. As of Thursday’s close, Starbucks shares are up less than 1% this year, trailing the S&P 500.

Starbucks, like its rivals, has been trying to adapt to a new normal where delivery and drive-thru are king and few pandemic-wary diners want to linger inside stores. The company, which was already testing pick-up only stores before the virus hit, has accelerated the roll out of to-go locations that boast smaller footprints and less seating.

To make room for the new stores, which will be in cities like New York, Boston and Chicago, Starbucks has said it will be closing about 400 of its traditional cafes in urban areas. In the latest quarter, Starbucks opened 480 net new stores, ending the year with 32,660 locations globally, nearly half of which are in the U.S.

Starbucks Signals Worst Is Past Following Quarterly Sales Drop

Like other quick-service restaurants, Starbucks has said that consumers are buying more per order but visiting much less frequently during the pandemic. That’s still this case this quarter: In the U.S. and Americas region, the number of transactions were down 25% but the average check per visit was up 21%. The trend was similar on a global basis.

Same-store sales in China were down 3% in the latest period; analysts had forecast a 2.7% drop.

Revenue of $6.2 billion was down 8% from the same period last year but ahead of analyst projections. The company said it lost about $1.2 billion in sales relative to its expectations ahead of the pandemic.

©2020 Bloomberg L.P.

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