Starbucks expects to lose $ 3.2 billion and plans to close 400 stores

On Wednesday, Starbucks (SBUK) revealed that it will be closing down 400 stores among the over 10,000 locations in Canada and in the USA over the next eighteen months. The company revealed that comparable US and China sales are down by 43% and 21% respectively in May.

In April 2020, Starbuck withdrew its prior outlook. However, the company is reporting that it will be losing $3.2 billion in revenue during its fiscal third quarter as a result of the coronavirus pandemic. The company is forecasting a net loss per share of 64 cents to 79 cents and adjusted losses per share of 55 cents to 70 cents for a quarter ending June 28. Notwithstanding, the company is expecting an improvement in its fiscal fourth quarter. It is predicting that by the fourth quarter, net income per share of 11 cents to 36 cents and adjusted earnings per share of 15 cents to 40 cents.

The company explained that the closedown of the shops is not exactly a retrenchment as it is still working towards expanding its shores with an additional 300 stores by the end of this year. This was the plan of the company at the beginning of the year and it is still working towards making the plan a reality. Also included in the plan is that 40 to 50 shops among the 300 new stores that are being predicted will offer drive-through or pickups.

Usually, Starbucks close up to 100 stores per year as a result of market conditions and lease expiration. The decision to up the number is triggered by the current recession caused by coronavirus pandemic. The company did not reveal the location of the stores that will be closed, however, it says that the stores would be in “high-social gathering locations” like malls and campuses.

Following the release of the news, the company's share dropped by 4 percent in midday trading. According to Starbucks CEO Kevin Johnson, “As we navigate through the COVID-19 crisis, we are accelerating our store transformation plans to address the realities of the current situation, while still providing a safe, familiar and convenient experience for our customers,”

Although 91% of the company's stores are opened in the US, 99% in China, the company has suffered a hit in its sales as the current health and economic crisis continues to deter many people from venturing into public places and spending. This is despite the fact that the company has reduced its sales method to takeaway services. 

The company revealed that the new 300 stores would concentrate more on pickups and drive-through. To achieve this, Starbuck would be making use of its ordering apps like walk-up windows, Uber Eats, and curbside pickup. This would help enhance social distancing that is currently being encouraged. The CEO added that “While we had originally planned to execute this strategy over a three- to five-year timeframe, rapidly evolving customer preferences hasten the need for this concept.”