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Starbucks Gives Investors a Surprise Update on China

By Jon Quast - Mar 5, 2020 at 10:11PM

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Many stores are back open, but sales have plummeted.

In an unscheduled SEC filing on March 5, coffee-giant Starbucks (SBUX 3.76%) provided an update for its shareholders regarding its business in China. The coronavirus outbreak has been a major issue to the Chinese economy, where Starbucks has 13% of its total store locations. 

As of right now, 90% of Starbucks' Chinese locations are open. That's up from less than 20% in early February. However, despite having reopened many stores, it expects to report a 50% drop in comparable-sales in China when it releases second-quarter 2020 earnings in a couple months.

Starbucks coffee cups in China

Image source: Starbucks.

The Chinese economy on standby 

To prevent the further spread of COVID-19, much of the Chinese economy is on standby. Disney postponed the release of its film Mulan, specifically produced with the Chinese consumer in mind, because many movie theaters in the country have closed. Yum! Brands, much like Starbucks, has closed 30% of its Chinese locations, and sales have been cut in half. 

With store closures and a drop in comparable-store sales, Starbucks expects a $400 million to $430 million hit to Q2 revenue. It will also cost the company between $0.15 and $0.18 in earnings per share.

During this time, Starbucks is trying to take care of its employees, or as it calls them, "partners." Salaried partners continue receiving normal pay. Hourly partners were paid for time they were scheduled to work but couldn't because of closures. The company has even increased its benefits to include counseling for partners and their family members, to help them through this time of crisis.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
$79.26 (3.76%) $2.87
The Walt Disney Company Stock Quote
The Walt Disney Company
$96.14 (1.84%) $1.74
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
$116.71 (2.82%) $3.20

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