Starbucks Corp. (SBUX) is planning to further reduce workers’ hours to adjust pared-back operations at its U.S. stores amid expectations that sales won’t return to levels seen before the coronavirus outbreak until at least September.
The Wall Street Journal reported that the world’s largest coffee company is asking employees to take unpaid leave until September as it plans to keep the dining rooms at most of its thousands of U.S. cafes shut for now. The latest reduction comes after the chain in May reopened stores with reduced operations and had to trim employee hours as a result, limiting sales to drive-throughs, delivery and pickup.
Starbucks has pared down its business because many restaurant owners remain concerned over how to protect workers and customers, the company said. Workers were expected to begin being notified about their reduced hours and options on Monday, Starbucks store supervisors told the Wall Street Journal.
According to the report, an executive said in an internal forum for employees last week that Starbucks was seeking to cut the number of hours so it can qualify for insurance coverage given the reductions.
Fast-food chains, including Starbucks, have been struggling to reopen their stores and operations in view of the health restrictions they need to meet because of the coronavirus, while some customers are also still cautious. Starbucks said late last month that U.S. same-store sales were down 35% to 40% from last year, even after the company restored modified service to more than 85% of its company-owned stores.
“Customer routines and occasions have changed, for all retailers,” said Starbucks’ Rossann Williams in a letter to employees last week.
In addition, Starbucks closed some stores over the weekend due to damage or to safeguard employees due to the violent protests sparked by the death of George Floyd.
Shares in Starbucks have been on a recovery path surging 39% since March to trade at $78.32 as of Monday’s close. However, the stock is still down over 12% year-to-date.
Cleveland Research analyst Steven Gojak, who maintained a Hold rating on the stock says he believes Starbucks may have been hit harder by Covid-19 than its quick-serve peers.
“Starbucks’ U.S. comp [sales] trends likely show modest improvement and may plateau over the coming three to four months in the down 10%-15% range,” Gojak wrote in a note to investors. “The company’s exposure to breakfast and commuter traffic, its lower drive-thru mix relative to peers, and limited store operations will likely continue to weigh on comps.”
Overall, the Street is cautiously optimistic on the stock. Wall Street analysts’ ratings show 12 Holds and 11 Buys adding up to a Moderate Buy consensus. The $80.20 average price target reflects limited upside potential of 2.4% in the shares in the next 12 months. (See Starbucks stock analysis on TipRanks).