Starbucks swings to loss in Q3, beats Street on EPS and sales

COVID-19 delivered a substantial blow to Starbucks Corp.'s performance in the third quarter of fiscal 2020, but the coffee retailer still beat analyst predictions.

Starbucks swung to a net loss of $678.1 million for the quarter, compared to net earnings of $1.37 billion in the prior-year period. However, net loss per share of $0.58 beat Wall Street projections for a net loss of $0.63 per share. Earnings per share (EPS) totaled $1.12 in the third quarter of fiscal 2019.

The company also outperformed analysts with same-store sales losses that were partially mitigated by large order sizes. Starbucks reported a global 40% decline in same-store sales, beating predictions of a 42% decline, driven by a 51% decrease in comparable transactions that was partially offset by a 23% increase in average ticket. 

U.S. same-store sales fell 40% with comparable transactions down 52%, partially offset by a 25% increase in average ticket. In Starbucks’ second-largest market of China, same-store sales were down 19% with comparable transactions down 27%, slightly offset by a 10% increase in average ticket. 

The retailer’s net sales declined 38% year-over-year to $4.22 billion from $6.82 billion, beating estimates of $4.14 billion. Starbucks attributed lost sales of approximately $3.1 billion relative to the company’s expectations before the outbreak, including the effects of temporary store closures, modified operations, reduced hours and reduced customer traffic. 

Starbucks opened 130 net new stores in the quarter, yielding 5% year-over-year unit growth, ending the period with 32,180 stores globally, of which 51% and 49% were company-operated and licensed, respectively. Stores in the U.S. and China comprised 61% of the company’s global portfolio at the end of Q3, with 15,243 and 4,447 stores, respectively.

The Starbucks Rewards loyalty program’s 90-day active members in the U.S. declined to 16.3 million, down 5% year-over-year, due to reduced customer frequency which the company primarily attributed to temporary store closures and other impacts related to the COVID-19 outbreak.

Kevin Johnson, president and CEO, Starbucks, struck an optimistic tone in his comments about the quarter.

“Starbucks partners have risen to the occasion, and our near-term focus is to recover sales safely and responsibly by offering our customers the comfort and care that differentiate the Starbucks experience,” said Johnson. “We are pleased to share that the vast majority of Starbucks stores around the world have reopened and our global business is steadily recovering, demonstrating the relevance of the Starbucks brand and the trust we have built with our customers. We firmly believe that we are well-positioned to regain the positive business momentum we had before the pandemic began and look forward to reigniting our 'Growth at Scale' agenda.”

Looking ahead, Starbucks expects global and U.S. same-store sales to decline 12-17% both for the fourth quarter and full fiscal year 2020, with China same-store sales staying flat to a 5% drop for the fourth quarter and declining 15% for the full year. The retailer expects to open roughly 300 net new stores in the U.S. and roughly 500 net new stores in China.

Starbucks also revised previous guidance for EPS to the range of $0.18 to $0.33 for the fourth quarter and $0.83 to $0.98 for the full year, from $0.15 to $0.40 for the fourth quarter and $0.55 to $0.95 for the full year.