Wednesday, July 29, 2020

Starbucks Shares Hot Despite Q3 Being in the Red

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News shaping
the markets today

     

What’s happening: Shares of Starbucks Corp gained in extended trading on Tuesday despite the company recording losses for the third quarter.

What happened: Like other restaurant chains worldwide, Starbucks suffered during the quarter due to the trend of home deliveries of food and beverages. With shelter-in-place orders, there was practically no footfall in coffeehouses. Even when the restrictions eased, the Seattle, Washington-based company was at a disadvantage, as it has far fewer drive-throughs than its peers.

Despite this, Starbucks was still able to exceed the consensus estimates, and investors saw a ray of hope as the company’s comparable-store sales turned positive in July.

How were the results: The coffeehouse and roastery giant swung to a massive loss in the third quarter, with a steep decline in revenues.

  • Revenues plunged 38% to $4.2 billion, although the figure exceeded expectations of $4.06 billion.
  • Starbucks recorded a loss of $678.1 million, or 58 cents per share, versus a profit of $1.37 billion, or $1.12 per share, in the same quarter last year.
  • Excluding onetime items, the company posted a loss of 46 cents per share, versus adjusted profits of 78 cents per share in the year-ago quarter. The figure was better than the consensus view of a loss of 59 cents per share.

Why it matters: Starbucks suffered a massive blow in the quarter and saw its global same-store sales tumbling 40%. However, the decline was better than feared. While outlets remained closed in the US, the company’s business recovered in another key market – China.

CEO Kevin Johnson said that comparable-store sales in the US had turned positive in July for the coffee chain’s 3,100 company-operated locations that were open through the quarter. Starbucks has over 8,800 outlets in the US.

The CEO’s comments were echoed by fast-food chain McDonald’s, which also saw positive same-store sales in the US in July.

Starbucks announced a cash dividend of 41 cents per share but did not issue projections for the year.

How shares responded: Shares of Starbucks rose 5.7% to $78.88 in after-hours trading, after declining 2.4% during the regular session on Tuesday. The stock gained over 4% during the past month, although it is still down by 5% for the last three-month period.

What to watch: Starbucks is now planning to begin curb-side pickups and expects to offer this option at more than 50 locations in the next 12 to 18 months. Investors will look out for news related to this development and any indication of the company’s business recovering.

The Markets Today

     

European stocks will be in focus today, after closing mixed in the previous session.

Context: European stocks closed mixed on Tuesday, as investors remained cautious due to the continuous surge in covid-19 cases globally and a second wave of infections in the region. Signs of progress on additional stimulus from the US government gave the markets some optimism.

Details: The surge in infections has kept investors on edge, with various countries imposing new travel restrictions to curtail the spread of covid-19.

Investors are likely to focus on the US Federal Reserve meeting today, with the central bank expected to keep its benchmark interest rate unchanged.

The pan-European Stoxx 600 rose around 0.5% on Tuesday, with food and beverage stocks leading the gains by rising more than 1%.

Shares of LVMH Moet Hennessy fell around 4% on Tuesday after the company posted an 84% decline in its profits for the first half. Delivery Hero’s stock rose more than 2% after the German company lifted its revenue forecast for the fiscal year.

London’s FTSE 100 gained 0.4% on Tuesday, while the German DAX 30 index and French CAC 40 posted losses of 0.03% and 0.22%, respectively.

What to watch: Investors awaiting various economic reports from the European countries today, including import prices, consumer confidence and retail sales.

Investors will also continue to monitor on the covid-19 figures, with the total number of cases exceeding 16.6 million globally.

Other Markets: US indices trading closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.77%, 0.65% and 1.27%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Saudi Arabia’s bank lending growth and money supply M3, UAE’s money supply M3, the ECB’s non-monetary policy meeting, Germany’s import prices, France’s consumer confidence, Spain’s retail sales, Italy’s producer prices, Switzerland’s investor sentiment index, UK’s mortgage lending, consumer credit and mortgage approvals as well as the US MBA mortgage applications, goods trade balance, wholesale inventories, pending home sales, EIA’s crude oil stockpiles and the Fed’s interest rate decision.