Starbucks’ strong quarterly earnings are clouded by coronavirus outbreak in China

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Starbucks President and CEO Kevin Johnson speaks at the 26th Annual Meeting of Shareholders at McCaw Hall in Seattle, with more than 3,000 shareholders, employees, guests and board members, on Wednesday, March 21, 2018.

Starbucks President and CEO Kevin Johnson speaks at the 26th Annual Meeting of Shareholders at McCaw Hall in Seattle, with more than 3,000 shareholders, employees, guests and board members, on Wednesday, March 21, 2018. (Ellen M. Banner/The Seattle Times/TNS)

Starbucks reported stronger-than-expected results for the first quarter of its 2020 fiscal year Tuesday, but that was overshadowed by news from China, where more than half of the Seattle-based company’s stores have been closed due to the coronavirus outbreak.

Although Starbucks expects the closures to be temporary, company officials acknowledged that the outbreak would likely “materially affect” company performance in the coming year. The outbreak has killed more than 100 people in China, where there are more than 4,500 confirmed cases.

The warning, delivered in company filings and during a Tuesday conference call with CEO Kevin Johnson and other executives, contrasted starkly with Starbucks’ results, which showed the coffee giant building on strong growth through fiscal 2019.

For the first quarter of fiscal 2020, which ended Dec. 29, Starbucks reported net profit of $886 million on revenue of $7.1 billion, representing year-over-year increases of 16.4% and 7%, respectively. Earnings per share were up 21.3%, to 74 cents.

The company highlighted its improving same-store sales, or sales at stores open at least 13 months, which jumped 5% globally and 6% in the United States compared with the same period a year earlier; analysts had expected global same-store sales to grow just 4.4%, according to CNBC.

Starbucks credited the strong performance to several factors, including its continued expansion; its store count grew by 539 during the first quarter, to 31,795 worldwide.

Other key drivers: strong sales of cold drinks, rapid growth in loyalty program members, and the steady rollout of a data-driven supply chain that includes artificial intelligence-enabled espresso machines.

Still, uncertainties about China – where Starbucks has closed more than 2,000 stores, according to Bloomberg – weighed on company officials and investors alike.

Starbucks declined to update its earlier financial forecast for the remainder of the fiscal year and acknowledged that it might not know the full impact of the coronavirus outbreak until March, but executives said the company’s double-digit “growth model” remains intact.

The company’s share price, which closed Tuesday at $88.60, is down nearly 5.5% since Thursday, when China stepped up containment measures for the outbreak.

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