“Starbucks, COVID-19 Impact Inevitable This Year... Long-Term Growth Appeal Remains”

[Asia Economy Reporter Eunmo Koo] Regarding Starbucks, it is inevitable that the impact of the novel coronavirus disease (COVID-19) will be felt this year, but normalization is expected to be possible after the second half of the year. During the consumption normalization phase, the existing mid- to long-term growth points are expected to be highlighted again.

According to Samsung Securities on the 4th, Starbucks' stock price and valuation sharply declined in a short period due to the COVID-19 outbreak. Concerns have also been raised that the global stock market correction and Starbucks' long-term growth story may be partially damaged. Samsung Securities analyst Eunhye Lim stated in a report that "the 12-month forward price-to-earnings ratio (PER) has sharply dropped from 30 times to 19.5 times, which is at a historically low level, so further valuation declines are expected to be limited," adding, "therefore, this sharp valuation drop could be an opportunity."

It is analyzed that sales damage is inevitable due to the global spread of COVID-19. Analyst Lim forecasted, "The Chinese market will be severely affected in the second quarter of fiscal year 2020, and the North American market in the third quarter." The next earnings announcement is scheduled for April 28. She advised, "Currently, China is in a consumption recovery phase after reopening operations, and to understand consumer behavior in other markets such as North America, attention should be paid to comments on consumer behavior in the Chinese market in the upcoming earnings report."

Meanwhile, Starbucks is expected to be relatively less affected compared to other companies in the industry in the current situation. Analyst Lim explained, "Due to the rapid shift to drive-thru and delivery systems, increasing average unit volume (AUV) partially offsets sales slowdown, and as a company with fast-food characteristics, visitor increases are expected to proceed earlier than general restaurants."

She emphasized the need to focus on mid- to long-term growth potential. Analyst Lim said, "The COVID-19 outbreak is a factor delaying mid- to long-term growth speed but does not damage Starbucks' mid- to long-term growth appeal," and predicted, "During the consumption normalization phase, so-called revenge consumption, existing growth points will be highlighted again." The investment points were summarized into two main aspects: restructuring the growth-focused business model centered on the US-China G2 markets and building a customer-centric digital ecosystem. However, she added that prolonged COVID-19 impact in North America leading to same-store sales decline and intensified competition in China are risk factors.