Starbucks Corporation’s SBUX South Korean operation is pulling out all stops to curb the coronavirus spread after approximately 50 cases were linked to one of its stores outside of Seoul. The company has reacted promptly to the crisis scenario by reducing seating capacity in cafes and delaying a promotional event.
Of late, South Korea has witnessed a resurgence in coronavirus cases linked with churches, cafes, restaurants and other public places. Although Starbucks witnessed sharp decline in earnings and revenues in third-quarter fiscal 2020, the company’s South Korea business remained robust as the country had the pandemic under control.
Currently, seating capacity in Starbucks stores in Seoul city, Gyeonggi province and Busan city have been reduced by more than 30%. The company announced that it will increase hygiene rules across all stores. Starbucks operates more than 1,400 stores in South Korea.
Shares of the company have fallen 10.9% in the past six months, compared with the industry’s decline of 5.4%. The decline can be primarily attributed to the coronavirus pandemic.
Coronavirus to Hurt Future Results
The company’s results in the fiscal fourth quarter are likely to be impacted by the social distancing protocols. It anticipates international’s comparable store sales to decline between 10% and 15% in the fiscal fourth quarter, including a 3% favorable VAT impact. The company expects comparable store sales in China in the range of flat to -5%.
The company expected global comparable sales to decline 12% and 17% in the fourth quarter and fiscal 2020, respectively. Moreover, the company anticipates Americas and U.S. comparable store sales decrease of 12% to 17% in the fourth quarter and 2020, respectively. For fiscal 2020, comps are expected to be down 15% to 20% compared with prior estimate of decline of 10% to 20%. Starbucks anticipates consolidated revenues decline of 10-15% for the fourth quarter. Non-GAAP earnings for the fourth quarter are anticipated to be 18-33 cents, while for full year it is expected in the range of 83 cents to 93 cents.
Zacks Rank & Key Picks
Starbucks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Papa John’s International, Inc. PZZA, Chuy’s Holdings, Inc. CHUY and El Pollo Loco Holdings, Inc. LOCO. Papa John’s and Chuy’s Holdings sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2 (Buy).
Papa John’s has a three-five year earnings per share growth rate of 8%.
Chuy’s Holdings’ 2021 earnings are expected to improve 180%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
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