Starbucks stock hammered after company warns of a weak 2008

Starbucks says [read the news release] second-quarter earnings will likely miss analysts' expectations, and full-year earnings per share will probably be "somewhat lower" than last year's. The company blames "the sharp weakening in the U.S. consumer environment." At last check, Starbucks' stock was down more than 11% in after-hours trading. (Read the Associated Press story)

Comments

[col]

Well he's smart to take the hit right after returning. Howard should try and make things sound really crap nowao that when the company picks up (as it will) the change will look more dramatic and he'll get more credit. He's not exactly the first CEO to try this.

[col]

edit: "nowao" should be "now so"

[earnestobserver]

to all of you who love to praise schultz....

stock is down about 120% since he came back. i'm sure you still might be happy with your fake barista job and pike place roast... but the owners of the company are certainly not happy

[Boring Market]

If there really is a "the sharp weakening in the U.S. consumer environment" then how does Apple Inc. blow through their earnings. Apple is one of the consumer sensitive companies out there and still their profits increased 36%. Starbucks stills needs to turn it around, Shultz has seen this decline from his Chairman post. His new title as CEO isn't going to change anything. There is something seriously wrong here and a sudden 11% decrease in stock price is the icing on the horrible cake.

I have always been bullish on Starbucks and I am a loyal shareholder, but this is not a economic problem (or a consumer spending problem)...this is a Starbucks problem.

[RalphZilch]

it doesn't change the sentiment, but i think you mean the stock is down 60% or so from its historic peak. (being down 120% is not really possible)

[AnotherEarnestObserver]

How can stock fall 120%? That makes no sense. So, what, the investors owe money now? I don't get it. Help me out here. Do you mean it fell 20% since he came back? That would make more sense since it was somewhere around $19.50 when he came back and today it's going to close around $15.50. If one excludes today's fall of Starbucks stock and compare it to the Dow Jones Industrial Average, you'll see Starbucks' stock is not too completely out of whack, even though it still sucks. So, earnestobserver, did you skip math class this week or are you just a complete douchebag?

apple can sell $3000 computers all day long. sbux can't sell a $3 cup of joe?

its not the economy, stupid.

[Bob]

Maybe Schultz and his crew should take paycuts? Oh no, of course those will come from those who can least afford it, as they always do.

[Terry]

While I am upset my stocks are worth much less now, I am not worried.

This is what people call "taking a bath"
Announce horrible news to prepare for the good times to come.

Apple's sales is an indicator of the economy? I don't think so. People who buy Apple are rich. Rich people aren't worried about the economy because they have money already.

[Jim Lane]

Schultz scapegoats the economy. The loss is due to the fact that Starbucks has lost its way and investors seem not to have any confidence in his fixes.

Everything else out of his mouth is the proverbial bull's brown stuff.

jim

[FiscalReality]

@ Terry - That is the point, I think. The $3K 'puter is somewhat insulated...it spoke to a narrow market that was and remains relatively wealthy. SBux $3+ cups of warm brown water (with or without dairy) are a minor luxury that adds up quickly by the week/month and is *very* easy for people to get their head around "cutting" toward making ends meet. If the economy continues to circle the drain, Sbux is likely in trouble.

[Anonymouse]

Apple is a "niche" product. Starbucks is a victim of its own ubiquitousness. Costs too much to run a gazillion stores AND keep up with the quality. There are other chains out there with less stores, but they then have the money to invest in making sure their coffee is good.

It's not the economy. People won't quit drinking coffee. They'll give up their cars and bike to the cafe sooner than they'd quit showing up for their caffeine. Starbucks simply needs to quit over-roasting all of its coffee product. Even Pike Place leaves a taste like you've been sitting too close to a campfire - and it's what they're marketing as their "smooth" stuff?

It's not the worst coffee in the world - I go there once in a while for a change of pace, and they offer add-ins that other places don't have. But I know of few people who go to Starbucks every day because they honestly think they're drinking the best quality coffee their money can buy. And that's going to continue to be the problem. They need to scale it back and look again at the coffee they're offering - not re-market what's already there.

[kilroy]

Anyone out there with a prediction on how much longer I'll be enjoying these great Clover pressed Konas before they're prepared by a trustee rather than a partner?

[Darleen]

Ah, it makes me laugh how everyone on here has the fix for starbucks. My question is why don't you run a billion dollar company? You all obviously know what is wrong and how to fix it. Give me a break!

[Proud Barista]

"Ah, it makes me laugh how everyone on here has the fix for starbucks. My question is why don't you run a billion dollar company? You all obviously know what is wrong and how to fix it. Give me a break!"

@Darleen

You're right, most people on this forum are not CEOs of Fortune-500 companies. We are shareholders, partners, and customers of Starbucks. Which, IMHO, gives us a right to speculate and discuss the future of SBUX.

Why are you so critical about people politely discussing a topic they are interested in, just because we don't get paid millions of dollars to do it?

We don't need negativity on this site. Thanks.

[Melody]

Did anyone else notice that the article linked says that Starbucks has long-term goals of having 40,000 stores.

Yikes. 40,000 is a really big number. That's a lot of coffee.

Honestly, I think to survive, if they're really going to grow so huge, Starbucks will need to differentiate stores more.

Affluent markets would get a more premier Starbucks with the most expensive beans (bringing back Yirgachffe) and a Clover. Low volume stores in affluent areas would get La Marzoccos. Some stores would really only have basic stuff available.

Otherwise, and call me crazy, but how do you distribute that much of your beans? Is there enough Arabian Mocha Sanani for 40,000 stores?

I just can't imagine how it would work to have that many Starbucks.

[earnestobserver]

sorry about my math error.... busy day at work and obviously not paying enough attention

[adam]

I just don't see much progress at the store level. New marketing but that's about it so far. I tried the Pike Place coffee for the first time today and was unimpressed mainly because it tasted old. The store was in a mall and at the time was being run by three college age girls who were busy yapping about some ice cream place they went to.

There seems to be no discipline in the stores I frequent. I'm not saying to rule by fear but it would be nice to see some leadership. If you start to make an example out of bad employees by firing or discipline them the word will get out that the company is serious about quality. But in order to do that you need managers who care about quality and know what it means.

The whole three hour training and the signs proclaiming "Best Espresso in the 'hood" have been nothing more than a gimmick. I drink americanos with no sugar and a little dairy so I am sensitive to shot quality and I can tell you that nothing has changed since the retraining. The mindset is still the same as it was before. Is it really any wonder that things aren't going that well?

The problem is (at least at my store) the shift supervisors and baristas are too friendly with each other. Sure that's a good thing, but shifts avoid having to put their foot down since everyone is friendly. There comes a point when a manager needs to manage and that doesn't mean you can't be friends.

[The Dripp]

Honestly, this is going to be another year to year and a half and there isn't much that Starbucks is going to be able to do about it but avoid the lose of market share to McDonald's or Dunkin' Donuts. The economy is really going to take its toll.

This should be the time that the overseas opps shine but the ripple effect of The U.S. economy is already beginning to take hold in some parts of Europe.

The worst thing Starbucks could have done is let the words "Starbucks coffee & McDonald's Coffee" share space in the same sentence. Huge PR error there, but again, it will be corrected and any share price drops means buying opportunities for long term players.

[kilroy]

I spend a lot of my time in Seattle and all I hear about is howard and his actions regarding a failing NBA basketball team--now failing Starbucks.Old howard has to choose where to direct his time; he can't do everything as we are seeing.What's it going to be---the Sonics or Starbucks. There are thousands of partners out there who should be really concerned that howard appears to be spending most of his time directed toward multimillion dollar basketball action at a time when the company should get full attention.

[Ralphzilch]

I think melody is on to a good idea. the first (and most obvious) place to start is to differentiate their branding between the coffee "kiosks" (in the mall, target etc) and the stand alone stores.

make a local "flagship" store... have the clover, old fashioned espresso, fresh beans ... etc. and the premium prices to go along.

let managers run their stores with the DM breathing down their neck and you'd be surprised how quickly things turn around.

let managers run their stores without the DM breathing down their neck and you'd be surprised how quickly things turn around.

[Melody]

Kilroy,
I noticed that. Everyday in the news is something about Howard Schultz and the Sonics. Weren't you shocked that last night at right around 8:30 pm, the Seattle Times had already updated their site with a pdf of the Complaint filed by Schultz's counsel in the derivitive action to essentially un-do the 2006 sale of the Sonics.
http://seattletimes.nwsource.com/ABPub/2008/04/22/2004366926.pdf
^ If you look at the declaration on the PDF it was signed by Uncle Howard on the 22nd, and the complaint was filed that day, and made on to the Seattle Times by last night! Somehow that struck me as fast.

And though this is neither here nor there, I swear it seems like the Seattle Times is using the most unflattering photos of our Uncle Howard that they can find:
http://seattletimes.nwsource.com/ABPub/2008/04/22/2004338825.jpg

Howard really much more photogenic than that picture makes him out to be.

I guess I shouldn't say "our Uncle Howard" since I'm not a partner, but occasionally I have remember that I don't work for Starbucks. ;)

Ralphzilch, thanks for the props. I've always been a little leary of the idea of different classes of Starbucks stores, but I finally think that it's the only way it can work at the size that Starbucks is now, and will grow to.

[Cali ASM]

Adam,
I totally agree with you. We need more managers (and parnters in general) who care about quality, professionalism, and maturity. Maybe this won't solve all the problems, but it's could be a start?

Anon@8:26:41,
I totally agree with you too!!! NO MORE MICROMANAGING DISTRICT MANAGERS. In fact, let's train our SM/ASM's to be better overall managers and cut the DM positions completely making managers accountable to RD's instead. This would mean more individual control over stores by SM's and less influence from "behind-the-desk", non-retail partners who "think" they know what's going on but have had little to no experience running a store.

What does everyone else think? I'm really interested to get others' opinions regarding these suggestions.

[Von B]

It's not the economy? California home forclosures up 327% and it's not the economy? It is assinine to suggest otherwise. Starbucks is doing everything it can to weather the storm and Pike place (ie everyman's coffee) is going to be our anchor during the rough seas ahead. It is the economy stupid. when people are feeling the pinch,(and if you don't believe the average american is right now, you are a fool in denial of reality) they start to cut out unneccessary luxuries, and the starbucks routine unfortunately takes the hit, as caffeine can be purchased and brewed in your home, for alot cheaper.

[slightly confused]

"In the interim, we are rigorously managing our expenses and seeking additional opportunities to reduce costs," Schultz said in a release.

"In February, Starbucks announced it was laying off about 220 support staff who worked at the coffee retailer's Seattle headquarters and in field operations, and would leave about 380 open jobs unfilled."

Sooo, why would Starbucks spend millions upon millions of dollars for the CoffeeEquipmentCo. (makers of Clover)? From what I understand, CoEqCo, along w/ their employees, are now under the Starbucks' umbrella. In addition, the Clover is a niche-type of apparatus at best and (in its current form) does not mesh well w/ Starbucks' operations, roasting methods, or many of the stores' layouts.

This seems to be a confusing and incredibly expensive move for a company that is trying to rigorously manage expenses and reduce costs.

So is Starbucks trying to cut costs or are they trying to prove to customers (who the majority do not care enough about high-quality drip coffee) that they're all about the coffee?

I'm concerned because I am a shareholder and I'm receiving mixed messages.

CALI ASM - if things continue the way they're trending, i don't think it'd be long before they'd HAVE to do that. they already eliminated 600 positions. eventually the operations side would have to take a cut to satisfy shareholders. but i have a feeling my store would be more successful if my SM was actually allowed to run it - he knows what's best but is told what to do all the time.

i've noticed less traffic the past 2 days - gas hit an all time high in our region and i have a feeling that $3.60+/gallon has a lot to do with it. one of our partners spent $75 to fill her car. at less than $8/hr wage, that's tough to deal with. i myself have stopped eating out as much. when the economy, and gas, get so pricey, something has to go. for a lot of people, that's starbucks.

it's sad, but true...

Wow, it amazes me how some of you above so readily discount the effects of the US economy on the fiscal results of Starbucks. I suspect your the same individuals who would also argue that we are not, in fact, in a recession.

If you really beleive that then there is no help for you and enjoy the sand that you've got your head in.

Food and fuel prices are skyrocketing and will not be coming down anytime soon. In the case of oil, never. Read Hubbert's Peak, it has predicted what's going on right now with world oil supply extremely well. Combine that with demand expectations of China & India............mark my words you will never see "cheap" gas ever again.

Disposable income is rapidly decreasing, credit is much harder to get and personal debt is at record high's. These are not good factors especially when combined and are big drivers as to why the dollar value is decreasing globally.

In this enviroment, it is expected that a business like *$ will suffer. I agree with the above that McD's is maintaining because it is a staple commodity, food, whereas coffee is not. Also regarding Apple, I am willing to bet that the main drivers of those results came from international business. Businesses that have a good diversified international presence (IE: Brazil, Russia, India & China) where there are remarkable growth economies (for now anyway)do not have the same reaction. Starbucks does not yet have the same international penetration yet to offset domestic impact. Domestically almost every retailer is in the same slide that *$ is. Starbucks is not a unique conditon.

Anyway, do your own research and think for yourself. Be skeptical when taking in others opinions.....on anything really. For me, I'll be staying out of debt, working and saving as much as I can, investing wisely after much research and learn to live more frugally since basic expenses will never be as cheap as they once were.

Good luck

[cup o jo]

Stocks tumbling=Pike Place

[Trader on Confidence]

If you are smart you wil buy like crazy at 15.25 If it gets that low. Make a position and hold on to it. Remember, a lot of people will be dumping the stock on the opening but there are going to be as many buyers.

I'm long with sbux and expect to increase my holdings of this stock at the open tommorow and I'm going to hold on to it!

i wish my gas was 3.60$ a gallon...

[Jim Lane]

Foreclosures are just that. They may OR may NOT have a direct link. Schultz is using that as a whipping post to keep everyone from looking too closely at Starbucks (his) mismanagement. Thus: scapegoating.

[Pat Nerr]

just a few things to think about... the decline in sales, comps, general financial performance and stock price has taken place over the last 2 years... the punch to the belly from the mortgage market has really been over the last 10 months... do you really think that Starbucks downward curve is an advance indicator of a slumping economy?? From my recollection, an affordable luxury is something people will turn to in a downward turning economy and Starbucks has always enjoyed nice profits even during bad times... Perhaps it's not the affordable luxury it used to be... and the last couple years of building complexity in the stores and behind the scenes along with wasteful spending and creating and maintaining programs that have no business driver have contributed somewhat to the pickle the company is in... just maybe. Not to crap in the oatmeal of happy partners... just a heads up that you should be actively involved or concerned at how that "behind the scenes" is run. Should the SSC be replacing carpets and then turning around to install hardwoods in the SSC just cuz Howard isn't happy really necessary?? Does the company need to spend so much on Leadership development that clearly isn't getting the bang for the the buck when the front lines needs innovative and effective training? Should the top execs also be able to enjoy business travel to personal speaking engagements in such concerning times for the company? The cost cutting seems to be something like the American-pseudo diet... Cheeseburgers with diet cokes... cutting headcount that does actual work in favor of keeping leaders who are on half-time schedules doesn't jive in my brain.

As far as the foreclosure problem in the US... It was bound to happen when silly people who really can't afford a home sign up for loan programs they didn't really research or understand combined with a mortgage profession that really should have had more rigor around it like the real estate profession has with licensing and education... c'mon, they just implemented mandatory education and licensing here in WA state 5 months ago... the result?? only 50% of the existing mortgage brokers even made the cut...

But, back to Starbucks real issue... they're trying to make their King sized bed with sheets made for a twin... time for the execs to start expecting the same from themselves that they expect from frontline partners...

just sayin'...

[Darleen]

Why are you so critical about people politely discussing a topic they are interested in, just because we don't get paid millions of dollars to do it?

When I can come on here and read this being POLITELY discussed, as you put it Proud barista then we'll talk. I'm sorry but I'm sick to death of people jumping all over the way Howard is running this company when they have no experience in running a billion dollar company. Everyone's a critic. As far as negativity, that's exactly what I'm bitching about so maybe you should read my post before you jump on it. Just a thought.....

[Borat]

What do you guys think about a takeover bid for Starbucks? I have always thought that Pepsi might make a buyout offer, perhaps 30$ a share that Starbucks shareholders couldn´t possibly refuse. Does anyone have an INTELLIGBLE opinion on this?

Hey, darleen, you seem to think you are the only one entitled to an opinion and if anyone doesn't agree with you, they're wrong. Are you this narrow-minded and control freakish IRL? Just curious.

Yay, Pepsi-Starbucks!

Send Howie back to the Sonics!

[Al C]

Starbucks is Done! This is not because of the weak economy. It is their pompus attitude has come back to haunt them. The "build it and they'll come" strategy was ridiculous than & obviously wrong now. Stores within a stones throw away from each other in urban areas & multiple stores within small suburban towns is simple arrogance. The public has waken and realize that Starbucks was TOTALLY over rated.

[Trader on Confidence]

I'm in at 15.87. This is a bargin price for SBUX. I hope some of you bought and will continue to buy around this level. It's going to get better over the long term. The stock will hit 20.00+ by Q2 fiscal 09. A 25% increase over 9 months is what I like!!!!!! Buy buy buy and leave all the complaining at the door!

[Borat]

Trader On Confidence,
Starbucks showed a decrease in earnings which is extremely negative for a growth company. It is completely unprecedented fr Starbucks which has been growing at an increasing rate. Not only did growth slow down, there was negative growth in profits this time. If this keeps up, they will start losing money. I can´t scrutininze your trade, but their stock will not be trading up until they can start increasing their earnings again, which I don´t think will happen in 2009. Why do you feel that their earnings will increase next quarter if they decreased during this one?

[Al C]

I wouldn't touch SBUX. I feel they had their day in the sun and they abused it. Howard should take his millionssss and look for another venture.

[Melody]

Hey Webmaster, PLEASE consider removing anon's post at Apr 24, 2008 5:22:53 AM.

It's just attacks and insults. When people run out of intelligent arguments, they resort to personal attacks ...

Hey Melody, If my post is taken off then so should darleen's post for the very reasons I posted.

[STARBUCKS GOSSIP WEBMASTER]

Please get back to discussing the company and its current condition, and discontinue personal attacks.

[cupajoe]

Does anyone in corporate have a general feeling of what the aura is down on 1st ave. due to the fact most employees there are going to be compensated with stock options which, at present, are no where near being able to be exercised.

So, if it is the economy, then shouldn't EVERY coffee shop in America be taking a hit? Shouldn't Donkin Donuts be hurting too? In fact D&D are expanding into Arizona by something like 120 stores in the next few years.
I think everyone is blaming the economy becuase they don't want to admit that Starbucks has reached is Zenith a few years ago, and is a brand that is no longer as cool as it use to be. There is nothing worse for a brand then being un-cool!

Posted by: | Apr 24, 2008 9:36:21 AM

I agree.

I went into a McDonalds (I haven't been in years) and was I surprised - actually, they exceed my expectations.

I noticed that they have items similar to Starbucks - obviously espresso, yoguart parfaits, apple snacks, etc. The differences I noticed were, 1) price, McDonalds much more reasonably priced and 2) nutritionals on McDonalds snacks are "better/healthier" options.

In todays economy, Starbucks is a luxury. There are the rich that can afford Starbucks - but last I checked, there are more "not rich" folks in America and I bet they'll be going to McDonalds or DD or other places.

The "experience" is nice and all, but for the majority of people - at the end of the day it's about the money.

[xsbuxdm]

"...cut the DM positions completely making managers accountable to RD's instead. This would mean more individual control over stores by SM's and less influence from "behind-the-desk", non-retail partners who "think" they know what's going on but have had little to no experience running a store." - UMMM RDs are much more likely to be hired from the outside than a DM. And who do you think tells the DMS what to communicate to the SMs?

I posted a message a long time ago that SBUX was following the path of Whole Foods stock...big peak, and quick descent, followed my little to no growth for an extended period of time. I dumped what was left of mine several weeks ago, and wish I had dumped it long before that. It gets in the $10 range, I might consider buying again though.

The environment has changed completely for SBUX:
- it WAS unique 10 years ago, now it is ubiquitous
- it WAS a coffee company, and I believe Howard himself actually called it a media company
- simplicy of product and a limited product line made for great profit margins, now the products are much more complicated and labor intensive. Slows down productivity, eats into bottom line profits, but most importantly, there is no time for partners to focus on customers!!
- The competition has gotten better: SBUX forced the other guys to improve their product.

Bottom line, there are a multitude of issues, the economy is a small part of the big picture, but I have to say, I think the "darling" of Wall Street days are over, with or without Howard @ the helm.