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Starbucks closes half of China stores as virus hits

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Via Financial Times

Starbucks has closed more than 2,000 outlets in China and cautioned that its annual financial results had been threatened by the coronavirus, highlighting the challenges facing corporate America from the spread of the deadly infection.

In a sign of the scale of the disruption in China, the coffee chain on Tuesday said it had shut temporarily more than half of its near-4,300 cafés in the country, Starbucks’ largest market outside the US and its most important global growth engine.

Patrick Grismer, chief financial officer, told Wall Street analysts that Starbucks had been planning to upgrade its full-year profit forecasts after the US-based company’s performance in its fiscal first quarter was stronger than expected.

However, as a result of the rapidly expanding outbreak, Starbucks decided against changing the forecasts.

Instead executives cautioned that results both for the current quarter and the full-year were likely to be “materially” affected, although they were unlikely to be able to quantify the impact before March.

15,200


Number of US Starbucks outlets

Starbucks’ disclosure about its China shutdowns comes at a time of nervousness on Wall Street about the financial implications of the coronavirus, which originated in the central Chinese city of Wuhan and multiplied throughout the country and abroad.

Food and beverage companies are among the most exposed. KFC, Pizza Hut and McDonald’s have also closed outlets, with the latter expected to divulge more details about its exposure in an earnings report on Wednesday.

Starbucks has been among the most aggressive of western chains in expanding in China.

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Kevin Johnson, chief executive, has sought to capitalise on a growing taste for coffee and rising middle class. He described the virus-related disruption as temporary and said the company remained “committed to the long-term opportunity” in the country.

Figures published on Tuesday showed the US coffee chain opened more than 600 outlets in China in 2019, helping total revenues in the country rise 13 per cent to $745m.

Revenues in the US, Starbucks’ largest market, were up 9 per cent to $4.58bn, although in contrast to its China division the domestic business was driven more by existing outlets than new ones.

Starbucks’ store count in the US rose 3 per cent, bringing its domestic total to almost 15,200, compared with the 16 per cent expansion of its China outlets.

Shares in Starbucks, valued at $104bn, have lost 5.5 per cent since last Thursday and were down about another 1 per cent in after-hours trading following the results, even though its fiscal first quarter was better than forecast.

Net income jumped from $761m a year ago to $886m, equivalent to 74 cents per diluted share.

The update from Starbucks sent American depositary receipts in the company’s Chinese rival Luckin Coffee down 2.5 per cent after-hours, having lost 11 per cent since last Thursday.

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