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Starbucks mobile ordering, drive thru salvage fiscal Q2 from COVID-19

Starbucks Corp., managed to beat the revised consensus estimates during the fiscal second quarter as the coffee chain boosted mobile ordering and drive-thru service after it was forced to close thousands of sit-down coffee and crossaint sessions due to the COVID-19 outbreak.

The Seattle-based coffee house chain was part of the leading edge during the COVID-19 crisis, due to its early exposure when the outbreak was centered in Wuhan, China. However, company executives said they are seeing that market begin to recover and expect an eventual bounce back system-wide. 

"Today continued recovery in China strengthens our belief that these impacts are temporary, and that we will emerge from this global pandemic with new insights and capabilities that will make our business even stronger and more relevant," Kevin Johnson, president and CEO of Starbuck said on a conference call with securities analysts. "The principles we developed to drive our decision making since the pandemic started in January are serving us well."

Starbucks said it has temporarily closed 50% of its company-operated stores in the U.S., and more than 75% in Canada, Japan and the U.K. About 95% of stores in China are back open but operating on modified schedules with limited seating. The company expects to recover comp-store sales in China by the end of 2020, with results that will be flat compared with year-ago figures.

In the U.S., nearly 60% of its company-operated stores include a drive-thru, while 80% of its pre-crisis transactions were on the go, with a majority of purchases made through a drive-thru or through the Starbucks mobile app. Johnson said the company expects to have about 90% of its U.S. stores open by early June, however with enhanced safety protocols and modified schedules. 

Starbucks reported earnings of 32 cents a share in the quarter ended March 29. Earlier this month, the company said it would report preliminary earnings of 28 cents to 32 cents a share.

Starbucks said revenue fell 5% to $6 billion during the quarter to $6 billion.

The company reported a 10% drop in global same-store sales, driven by a 13% decrease in comparable transactions. The transaction decrease was partially offset by a 4% increase in the average ticket price.

Comparable-store sales in the Americas and the U.S. fell by 3% in the quarter, led by a 7% decrease in comparable transactions. This was partially offset by a 5% increase in average ticket price. 

International comp-store sales fell by a whopping 31%, driven by a 32% drop in comparable transactions. This was slightly offset by a 1% increase in average ticket size. In China, the original epicenter of COVID-19, comparable-store sales fell by 50% in the quarter, with transactions down 53%.

Johnson said most of the stores that remained closed in China are located in cinemas enclosed entertainment venues or in tourist zones and international travel hubs. 

Starbucks Rewards loyalty program membership grew 15% from the year-ago period to 19.4 million active users. 

The company opened 255 net new stores during the quarter, resulting in 6% year-over-year unit growth. The coffee chain had a total of 32,050 total stores.

Stores in the U.S. and China respectively, made up 61% of the company’s global portfolio, with 15,257 in the U.S. and 4,351 in China. 

The company expects the impact of COVID-19 to impact fiscal third-quarter results worse than fiscal second-quarter numbers, which didn’t hit the U.S. in huge numbers until March when stores were forced to shut dining areas. 

The impact will extend into the fiscal fourth quarter, but not at the same level, according to the company.