I have calmed down enough to finally put some thoughts down.
Starbucks (SBUX) U.S. comp sales fell by the mid-single digits on a percentage basis due to lower traffic (no kidding). U.S. same-store sales fell 1% in the Q1, the first drop since Starbucks began breaking out the figure in 2004. Global same-store sales rose just 1% in that period, the lowest figure since Starbucks went public in 1992.
Starbucks now says it expects earnings for Q1 of 15 cents a share, down from the prior year’s 19 cents (21% decline), with revenue up 12%.
As a result FY2009 earnings to be “somewhat lower” than the last year’s 87 cents. Starbucks said it can’t be more specific “due to the lack of visibility into near-term economic conditions.” In January they projected earnings of 96 cents to 98 cents. Funny how they can be very specific when expecting an increase but when a decrease is in the cards, they just cannot finger it. Translation? It will be very bad…
Althought, management does have a history of deceiving shareholders.
Looking at this (and after reading yesterday’s excuses)one can only assume we are approaching a depression until one looks at the other headlines from late in the day Wednesday.
Mac Sales Boost Apple’s (AAPL) Profit
Amazon’s Revenue Soars 37%
So I guess the reasoning now is that folks will pony up $3000 for a Mac but not $4 for a latte? Maybe the myriad of items being bought on Amazon (AMZN) each day are under $4?
The problem is that Starbucks has stopped giving people what they want. Schultz actually said people are “spending less” at his stores but “not going anywhere else”.
DELUSIONAL….. Howard, you sell an addictive beverage that people cannot go without. If they are not getting it from you, they are getting it from someone else. This is like an old prostitute whose business is in decline thinking people have just stopped using prostitutes. No, they are, just not you.
Has be bothered to look at the results at Mcdonald’s (MCD)? Saying “we are above them” while sales crash around you is nice if you are the captain of the Titanic going down with the ship, if you are the CEO of the company, investors are going down with you.
The final insult? Schultz refuses blame for the last three years.
“While this is having a substantial impact on our performance, I am as enthusiastic as I was when I returned to Starbucks as CEO 3 1/2 months ago about our opportunity to reinvigorate the Starbucks Experience.” Schultz is giving the impression that he “needs time” to work the turnaround.
Earth to Howard, you have been Chairman the whole time. You never left. One could say you have overseen this disaster. What should they do? Here, try this, it can’t do much worse.
One could honestly say that at least Phillip Schoonover at Circuit City (CC) acknowledges what he is doing is not working and things need to change dramatically. Schultz is blaming…housing….sad…
I wish I had shorted this thing over 15 months ago when I first pointed out the problems killing it today.
Disclosure (“none” means no position):None (thankfully)
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9 replies on “Starbucks Now An Avoid At All Costs”
Read your terrible post on Starbucks today. I guarantee you in 5-10 years Starbucks will be a double or triple and your post will look insane. You put down Schultz when he built an incredible brand in 15 years. What have you done? I love naysayers like you…who beat on companies at or near the bottom. You are a contrary indicator.
Not all your posts are bad. You pump DOW on a regular basis. I bought DOW myself recently and believe your analysis.
I have an assignment for you. Mark today’s low for SBUX on your calendar today and look back in 5 years …you will be wrong.
As for your AAPL and SBUX results comparison…terrible. People need computers to be productive in society so they are more necessary than coffee. Its not the price that matters. So, your comparison is poor at best.
Otherwise, keep of the good work…other than your bottom call on SBUX.
anon,
here is the flaw in your argument. people have many options in computing just like coffee. they are choosing in increasing numbers the more expensive option, the mac, unlike coffee..
i am sure in 5 years sbux will be higher than it is today. $20? even if it doubles in 10 that is only 7.2% a year. if it doubles in 5 that is just under 15% annual.
it still trades at 26 times next years eps…high
as for dow, liveris has been honest any very forthcoming to shareholders, unlike sbux
schultz built a great brand, i agree, unfortunately he watered it down. you cannot want to only appeal to “upscale drinkers” and be on every street corner.
schultz has failed or refuses to acknowledge this.
thus the problem with starbucks
I’m not a SBUX stock fan.
So you may very well be right, but not because of any sound logic.
First… as the other anon posted, your comparisons to Apple and Amazon are … silly. Not in the least due to the fact that you are comparing sales at SBUX to profit and revenue at Apple and Amazon. The SBUX headline could read: Starbuck’s Revenue soars 12%
?
What sort of point is that for making the argument that we are not in a recession.
There have been some good buys lately, and have finally wittled the cash position from 100% to around 60%, but we are in a deep recession. Your failure to see it will cost you a lot of money.
While you can make a valid argument that Harley’s are inelastic, coffee is not. SBUX is falling not due to competition, but due to people not willing to spend $4 on coffee.
When the economy comes back, people will start going to SBUX again. Why? Because there are flavors that aren’t available at places like McDonalds. Because the atmosphere is better. Because of Social Proof. There are a myriad of reasons why SBUX will have a continue to have a competitive advantage over competion, but the fact is that it’s an elastic good that can be done without. People aren’t going to McDonalds to buy coffee, they’re drinking it at work and making it at home instead – but they don’t like to. When they are able – they’ll be back at SBUX, but, that being said, there are a lot of better stocks out there than SBUX.
Oh yeah forgot to give my tag.
— JD
jd,
was not trying to make a point about recession or not based on the headlines but based on schultz’s cataclysmic statements on the consumer. i was pointing out that apples and amazon’s results would contradict much of that.
as for the coffee. i have been saying for over a year sbux has priced their product too high and now that the comp. is selling like items, people are going there.
the last # is saw for MCD was 30% increase in coffee sales..
DD is private but if i go ask the local franchisee i know, he is giggling
the are not enough “connoisseurs” of coffee to satisfy 14,000 plus locations at those prices. in order to be omnipresent, you must appeal to the broadest range of shopper, sbux no longer does…
it did when it was the only game in town, it is not anymore
do not forget, you are paying in excess of 26 times next years eps…
i will be a good pick eventually, around $10, or lower
deep recession? not even close….
What todd is trying to get at is that with gas approaching 4$ people are more likely to buy a gallon of gas than a grande latte. A 4$ cup of coffee is a luxury and when peeps are forced to choose between that and a gallon of gas people are going to settle with the cheaper Mcd’s brand of coffee. It has nothing to do with a recession rather it is a function of the expendable income that families have. Less expendable income = less lattes. Its simple economics and nothing to do with emotional loyalty to brand names.
In order for starbucks to really turn around, Todd is saying that if they appealed to the masses more(similar to what MCds is doing) then their comps would be up. In other words, More people would buy a latte at MCDs for a 1.5$ than pretty much the same thing at Starbucks for 4$(or whatever the price happens to be).MCDs is out selling lattes and they are seeing an increase in sales while starbucks is delusional. THEY(MCD’s) ARE PROVIDING THE SAME PRODUCT FOR FOR (get this) LESS.
Until shultz, or what’s his name is, recognizes that starbucks is going to see customers leave the store a walk over to MCD’s at the expense of shareholders.
McDOnald’s comparisons are insane. THe 2 store barely compete.
your right…
mcd is kicking their ass…
Do you think Starbux could be a fad?
I really can’t judge it because I have a different taste than many consumers (I think paying $4 for a coffee is crazy and rarely do it, I view Starbucks like Orange Julius. Although I prefer Orange Julius) but to me it seems like a niche product. I see the point about MCD’s and serving the mass market. But I wonder if we are seeing more than what happens to any popular business—competitors come in and drive margins down to nothing— because instead of being a hamburger joint, like BK, MCD, CKR, WEN, etc., they sell only one product. I think even 5 years ago you could say Starbucks had a really unique product, but today I think the difference between MCD and SBUX coffee is as wide as KO and PEP. i.e. fanatics will notice, but average joes will go to whatever is more convenient, with price as a consideration.