Coronavirus makes a dent in Starbucks' revenue
Starbucks has invested heavily in building its business and payment technology in China, so the coronavirus weighs on an otherwise strong earnings performance.
For the quarter ending Dec. 29, the coffee chain reported revenues were up 7% and earnings were up 16% . But Starbucks has closed half of its stores because of the outbreak, putting the company's payment flows in jeopardy. China generated $745 million in revenues for the quarter or about 10.5% of the company’s revenues.
Starbucks has tested several store, delivery and payment concepts in China, often in advance of introducing the technology in the U.S. That's made China a major revenue stream for Starbucks, but has added pressure as the virus crisis has escalated. “At present we are unable to reasonably estimate the impact to the business. Notwithstanding the fact that our China business represented 10% of our global revenues in the first quarter of fiscal 2020, we expect that these events to have a material impact on our international segment and our consolidated results with the second quarter and full year of fiscal 2020,” said Patrick Grismer, chief financial officer at Starbucks, during Wednesday's earnings call.
While Grismer did note that the impact was expected to be temporary, there was also a lack of clarity on when the situation would change as the Coronavirus outbreak is still an unfolding epidemic. Starbucks did not change its financial outlook, however Grismer said that it would provide an update on April 28th when it will announce its fiscal second-quarter results.
Revenues for Starbucks’ first quarter of its fiscal 2020 were $7.1 billion, up 7% from $6.6 billion in the same quarter one year ago. Its earnings for the first quarter were $885 million, up 16% from $761 million in the same quarter one year earlier.
The digital performance from order ahead and loyalty programs were very strong in both the U.S. and China reflecting continued consumer appetite for convenience.
“In the U.S. we added a record 1.4 million customers to our 90 day active [U.S.] Starbucks rewards member base ending the quarter with 18.9 million active members, a 16% increase over prior year,” said Kevin Johnson, CEO and president at Starbucks in the earnings call.
Johnson also added that the mix of mobile order ahead and paid transactions (through the app) in the U.S. grew to 17% in its fiscal first quarter. In the first quarter sales from China mobile orders jumped to 15% of total revenue, up from 10% in the past quarter. The breakdown of the Chinese mobile orders broke down as 9% emanating from delivery orders and the remaining 6% as mobile order ahead.
The popularity of Starbucks’s Chinese mobile program adoption has been very strong over the past year as it reported having its 90 day actives grow by 40% for the quarter compared to a year earlier, and now standing at 10.2 million members.
Starbucks executives were unable to say going forward if Chinese mobile delivery orders could make up for the fact that half its stores in China had closed due to the Coronavirus outbreak. The potential for more store closures in China weighed heavily on the company results, particularly since a major boost to its performance in the quarter was driven by the opening of 539 global net new stores in the quarter.
Starbucks experienced a very strong holiday season performance from its retail partners as Johnson noted “Our partners delivered one of the most successful U.S. holiday seasons in the history of the company.”