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Starbucks stores in Shanghai welcome customers as COVID lockdown eases

Coffee fans in Shanghai are heading back to Starbucks Corp. locations in that city as the COVID-19 lockdown eases and life tiptoes back to normal.

Chinese authorities began to lift a two-month lockdown in Shanghai earlier this week. The lockdown kept residents largely confined to their homes during that period.

By the third day of the reopening, Starbucks
SBUX,
-0.92%

had thrown open the doors at nearly 600 of the coffee purveyor’s 940 stores in China’s largest city. Shanghai has the most Starbucks locations of any city on the globe.

Most stores in Shanghai are only providing mobile ordering. The company says it’s working with local authorities on resumption of indoor dining.

See: Starbucks to end business in Russia

China is a key growth market for Starbucks. But the business there has stalled amid the country’s efforts to halt the spread of COVID-19.

In the most recent fiscal second-quarter earnings, Starbucks reported a 23% decline in comparable sales in China, with comparable transactions down 20%. At the time the earnings were released in early May, about a third of Starbucks locations in the country were either closed or offering mobile order service only.

Due to the uncertainty in China, Starbucks suspended its guidance for the third and fourth quarters.

Still, interim Chief Executive Howard Schultz expressed confidence in the company’s goal to eventually make the business in China even bigger than the one in the U.S. The company remains on the path to 6,000 stores in China this year.

“[O]ne in two coffee consumers in China chooses Starbucks over any other coffee retail brand, a huge lead that we have held for years and continue to build upon,” said Belinda Wong, chair of Starbucks China, on the earnings call, according to FactSet.

“Our dreams and aspirations for Starbucks China have never been greater.”

Also: Starbucks plans to invest roughly $200 million to tackle increased demand for customized cold beverage orders

And: Starbucks is an ‘affordable luxury,’ according to coffee pricing research

UBS rates Starbucks shares neutral with an $82 price target.

“Starbucks China’s brand affinity, strong store portfolio, growing digital mix (~43% F2Q), and Starbucks Delivers launch in January well position the brand longer-term,” wrote UBS in a post-earnings note.

“And despite pandemic headwinds, Starbucks opened 97 net stores in the quarter.”

Starbucks shares have slumped 32.6% for the year-to-date. The benchmark S&P 500 index
SPX,
-1.60%

is down 13.7% for the period.

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