Starbucks Q2 - The Good and The Bad

Last night Starbucks reported Q2 results. This company is quite obviously heavily impacted by COVID 19. Let's start with the bad news.

- 50% of US stores are closed right now. 50% of global stores are also closed.

- In places like Canada, Japan and The UK, 75% of stores are closed.

- Sales in China dropped 50% for the quarter. Overall sales dropped 10%.

- The negative impact of their biggest market, the US, will mostly be felt next quarter.

- The company is not able to give guidance for the year.

- Guidance for China sales in Q3 still sees a drop of 25%-35% drop.

Ouch, that was some rough news. The share price is down 17% from its January levels. At one stage in mid March it was down 40%.

Now for some good news.

- 98% of its China stores are open. These are highly profitable, Starbucks owned stores. These stores are operating under modified schedules with enhanced safety measures.

- The experience in China has given them the blue print for the rest of their stores when things start normalising in various regions.

- They are preparing to start reopening stores in the US. This is being made possible by their high online engagement for orders which limits time in stores.

- They now have 19.4 million active loyalty program members in the US, that is up 15% form last year.

- Their Channel Development Segment (8.3% of sales) which includes sales to home with Nestle were up 16%.

- They expect things to start normalising in Q4.

Expect a very rough quarter from Starbucks in Q3. That is when the full brunt of the lockdown will be felt. But the market knows this and is looking past that. If lockdowns around the globe are longer than expected, the share price will lag. If things start opening quicker than expected, Starbucks will do well. In 5 years time we expect Starbucks to be stronger than ever. Hold this one through the tough times.