Services

Will Starbucks Customers Wear Masks? Some Won't

Douglas A. McIntyre

Published: July 10, 2020 7:13 am

Starbucks Corp. (NASDAQ: SBUX) closed most of its locations worldwide early in the rapid COVID-19 spread period. It then opened stores for takeout, but people could not linger in its stores as they have for decades. Now that the coffee company has opened even more locations, it will require customers to wear masks. Since this is not popular in parts of the United States, its revenue could continue to be hampered.

The announcement included a loophole. In areas where masks are not required, people can continue to use drive-through locations and stores that have pick-up capacity. In places where people have to wear masks, customers are not welcome without them.

Starbucks views its decision as a community service. “The company is committed to playing a constructive role in supporting health and government officials as they work to mitigate the spread of COVID-19.” While that may be true, the likely impetuous is to get back its customers.

Starbucks has suffered a drop in traffic that compares to many other retailers. Fortunately, it has a strong balance sheet and the cash to make it through a prolonged period with modest sales. It has 8,791 company-operated and 6,250 licensed stores in America. It can only force its own stores to adopt the new policy.

The extent to which Starbucks has been damaged turned up in its fiscal second-quarter results. Revenue fell 5% year over year to $6 billion. Earnings declined by 47% to $2.80 per share. Management forecast that future figures would be worse but might pick up by the end of the year. The rising spread of COVID-19 in the United States may undermine that hope.

Like many other U.S. companies, Starbucks suspended its detailed guidance for the balance of the year. Management’s message as it released numbers was as much about how it could help the impact of COVID-19 on communities as it was about finance. Kevin Johnson, president and chief executive of the coffee retailer said: “People around the world are united around a common cause as we navigate the COVID-19 situation globally. We are very grateful for the heroic efforts of medical personnel, first responders, government officials and volunteers who are working tirelessly in the service of others.” He added that a major goal was to provide safety to his workers.

The Starbucks balance sheet is ironclad. It shows $2.6 billion in cash available and the financial strength to raise more money if necessary.

Among those most badly hurt by a long recovery of Starbucks sales are the investors. The shares are down 16% this year. While that does not compare to the catastrophic drop in other retail stocks, investors face a long road back.