- Starbucks (NASDAQ:SBUX) is up a healthy 4.75% in early trading after investors take in the fraud finding at Luckin Coffee.
- Analysts are already out saying that the dark cloud over Luckin could alleviate some concerns over SBUX's China business.
- The Luckin news takes some of the sting out of Fitch Ratings dropping its outlook on Starbucks to Negative. The negative vibe from Fitch is tied to the impact on the chain of the pandemic and store closings.
- "Fitch envisages a scenario where restaurants are restricted across many jurisdictions from offering dine-in services through mid-May with self-imposed and mandated restrictions expected to be relaxed through the summer. Restaurant sales during this period could be down as much as 90% with quick-serve establishments like Starbucks' whose traffic is traditionally more off-premise less impacted than casual dining establishments that are geared more towards dine-in experiences. Given an increased likelihood of a consumer downturn, discretionary sales could decline in the mid-to high-single digits through the holiday season. Fitch anticipates significant growth in 2021 against a weak 2020, but expect total 2021 sales could remain 8%-10% below 2019 levels. Given the typical timing of a consumer downturn (four to six quarters), revenue trends could accelerate somewhat exiting 2021, yielding 2022 as a growth year."
- If you read through the whole Fitch report, the ratings agency still has a fairly positive view of the long-term potential for Starbucks.