The impact of the novel coronavirus isn’t equal across the stock universe. Some investments will get hit harder than others. Starbucks (NASDAQ:SBUX) stock has not shown resilience during the past month and there could be more pain ahead.
Starbucks doesn’t deserve all of the blame for this, of course. It’s not the company’s fault that the novel coronavirus outbreak has altered consumer habits so drastically. Still, investors must be aware of what’s going on with the company and calibrate their strategies accordingly, even if that means selling the shares for a loss.
A Hard Impact
Just a couple of months ago, the idea of a virus infecting over 1.5 million people globally and causing nearly 90,000 fatalities was practically unthinkable. And yet, here we are and this is now a tragic reality.
Video game and streaming content companies seem to be doing comparatively well, but since digital coffee isn’t on the menu, Starbucks has struggled during the pandemic. The price of SBUX stock was above $93 in January, only to fall to the $50’s though it did recover some of that in early April.
The fact is, stay-at-home mandates have absolutely devastated Starbucks. In the last week of March, only 44% of Starbucks’ company-operated stores were up and running. Among those that were running, most of them had “modified” hours and were only serving customers via the drive-through.
KeyBanc Capital Markets led by Eric Gonzalez observed how Starbucks, which relies on its customer’s morning coffee routines, has been negatively impacted by the pandemic: “… we believe Starbucks and other quick-service chains with heavy exposure to the morning daypart are underperforming comparable lunch/dinner-centric brands as daily routines and commuting patterns are upended.”
KeyBanc’s analysis is spot-on as Starbucks locations can’t fully function when people’s habits and routines are disrupted. This factor has manifested itself in the worst way possible through Starbucks’ preliminary second-quarter fiscal 2020 earnings announcement, which is just as disheartening as you might imagine.
Actually, it’s probably worse than you imagined it would be. For the second fiscal quarter, Starbucks estimated that its adjusted earnings would be just 32 cents per share. That’s a far cry from the 60 cents per share posted in the same quarter of the previous year.
The actual earnings report date is April 23, but the preliminary estimate paints a bleak picture. Moreover, the company admitted that the impact from the coronavirus pandemic during the fiscal third quarter will be “significantly greater” than in it was in the second fiscal quarter, and that the impact will spill into the fourth fiscal quarter.
To make matters worse, Starbucks has suspended its share-buyback program. Share repurchases drove much of the stock market’s price growth for the past several years, but SBUX stockholders won’t be able to rely on that now.
And finally, Starbucks withdrew its guidance for fiscal 2020. We can’t claim that Starbucks is the only company to do this, but it’s certainly not a good sign. To be frank, it almost feels like the company doesn’t want to admit how bad things will get for the company and the stockholders.
The Takeaway on SBUX Stock
No guidance means less clarity, and it’s awfully hard to believe in SBUX stock when this piece of the fiscal puzzle is missing. The situation might get better before 2020 is finished, but that’s not a wager to make with any real confidence at this point.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.