Starbucks Corp. (NYSE: SBUX) posted strong earnings. As a footnote to the news, it said it had closed half its stores in China. Other locations have shortened hours. Starbucks management believes this is temporary. However, it is not at all clear what temporary is.
Starbucks revenue rose 7% to $7.1 billion. Earnings reached $0.74 per share, up 21% from the prior-year period. Revenue in China was $745 million, up 13%. The Starbucks store count in the country was 4,292, which was 16% more than last year. This is against a global store count of 31,795. Globally, Starbucks added 539 stores in the period.
The China store count is modest compared to the balance of the company. However, it is where Starbucks’s growth has soared and continues to do so. If stores are closed several months, or even weeks, the effects on overall revenue will be significant. Such a move would have been inconceivable just a few days ago. Now, if the coronavirus spreads rapidly, Starbucks could find itself with nearly no operations in China.
Starbucks management said that current developments in China will have a “material effect” on its earnings. Moves by other companies show the dangers of what may happen next. British Airways announced it has canceled flights to China completely. The Centers for Disease Control and Prevention has warned Americans about traveling to the country. The death toll has reached 132. The number of cities in China that have restricted travel has grown and will grow further.
How bad is the coronavirus? The World Health Organization (WHO) and Chinese authorities say they will issue regular updates. In the meantime, the number of cases has grown at a pace that has alarmed experts. Starbucks revenue in China won’t go to zero, but it could plunge beyond imagination.
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