- Starbucks Corporation (NASDAQ: SBUX) CEO Kevin Johnson and CFO Pat Grismer recently wrote a letter to stakeholders unveiling its plans for the future. These are the details.
Starbucks Corporation (NASDAQ: SBUX) CEO Kevin Johnson and CFO Pat Grismer recently wrote a letter to stakeholders unveiling its plans for the future. For the fiscal third quarter, Starbucks is expecting to see a loss of as much as $3.2 billion in revenue due to the coronavirus pandemic.
After Starbucks announced this news, shares in the company fell from about $82.50 to $77.35 after that news was announced on Wednesday. For the quarter ending June 28, Starbucks is also forecasting a net loss per share of 64 cents to 79 cents and adjusted losses per share at 55 cents to 70 cents. However, the fiscal fourth-quarter earnings are expected to improve and net income per share is expected to be 11 cents to 36 cents and adjusted earnings per share of 15 cents to 40 cents. And by the end of this month, Starbucks is expecting the weekly cash flow to be positive according to CNBC.
The forecast for same-store sales growth in the U.S. and China is expected to decline by around 10% to 20%. And for the fourth quarter, same-store sales growth in China is expected to be flat while same-store sales in the U.S. is going to stay negative.
“With each passing week, we are seeing clear evidence of business recovery, with sequential improvements in comparable store sales performance,” said CEO Johnson and Grismer in the letter to stakeholders. “The Starbucks brand is resilient, customer affinity is strong and we believe the most difficult period is now behind us.”
Around 95% of U.S. locations are now open again. And the majority of the closed locations are in the New York City area. In terms of new store openings, the company is planning to resume in the Americas. Now Starbucks will be opening around 300 net new locations in fiscal 2020 in the segment, which is down from the previous estimate of 600.
Starbucks will be closing down as many as 400 company-owned cafes in the next 18 months. Since more customers are ordering through the Starbucks app, the company was planning to modify cafes over the next three to five years. But the pandemic caused the company to bump up that schedule.
“There has been no change to our fiscal 2020 capital allocation plans as communicated during our Q2 earnings report, with temporary suspension of share repurchases, uninterrupted quarterly dividends and capital expenditures of approximately $1.5 billion… We remain committed to our BBB+/Baa1 credit rating and leverage cap of three times rent-adjusted EBITDA. While the impacts of COVID-19 will cause us to exceed that leverage cap for a period of time, we view these impacts to be temporary and we expect our leverage to return to near three times rent-adjusted EBITDA in the latter part of fiscal 2021. In short, our leverage policy is unchanged,” added the company in the letter. “Additionally, given the unprecedented business circumstances, we have reached an agreement with our bank group to amend the fixed charge coverage ratio covenant that underpins our combined $3 billion revolving lines of credit, through the fourth quarter of fiscal 2021. As of today, we have not drawn on these lines of credit.”
More pick-up stores will be opened up across dense urban markets like New York, San Francisco, and Chicago. The first mobile pick-up location was opened in Penn Plaza in Manhattan in November. Some of these locations will have walk-up windows, curbside pick-up, and double drive-thru lanes.
And Starbucks will be renovating cafe layouts by adding separate counters for mobile orders from customers and delivery couriers.
