Avoid Starbucks at All Costs

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...

Although management does have a history of deceiving shareholders.

Looking at this (and after reading Tuesday'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)

Comments

[johndaniels]

thanks for the useless warning....your a lost sheep too....just like us

[PokerDonkey]

I'm not too surprised at Starbucks' woes. After they took an afternoon off to retrain employees, I attempted to get a Venti coffee with cream and sugar. It took the moron 3 tries to get the order right! Here's a tip: If your main business is selling coffee, don't hire idiots that can't make a cup of coffee.

[todd su]

poker,

they may be too big to do anything else...

[kurt walter]

Forget the $5.00 cup of coffee. It never made sense to me. It makes less sense now.

[tylakewalker]

I am one person that quit going to Starbucks completely. I also started packing my lunch to work every day. Why? Cost of gasoline, It is that simple. Starbucks coffee is not addicting, caffeine is, and I get that for free from my employeer in the form of drip coffee or black tea. I think Starbucks is a good company with a good product but Starbucks coffee is one of the first things people will cut back on when money is tight.

[bgdreamz]

Starbucks became like Mc Donalds- no body goes to Mc Donalds for a great burger and Starbucks never had great coffee, they just have so many locations that one can't deny the convience. McDonalds has had to reinvent themselves a number of times, yet Starbucks sticks with over priced mediocre coffee and overpriced food. Times are getting tougher, people want more value- I go blocks out of my way to get a truly great, FRESH cup of coffee from a local roaster. Wise up, reinvent your menu, train your workers in customer service, offer fresher products that are worth the price--drop the attitude!!

[User 183037]

starbucks isn't losing market share to mcdonald's. Other companies that are doing well in the economic down turn are having their weaker earnings in the U.S. compensated by strong global earnings. McDonald's acknowledged weakness in the U.S. market in their earnings conference call as well, but their international business did great, which offset the U.S. weakness.

If you look at Starbucks, their problem is from domestic economic weakness since they do not get much business overseas.

However, Howard Schultz is addressing the issues. For example, he is going to close more U.S. stores to reduce cannibalization and open more stores overseas as a strategy for growth.

It takes time for a company to shift gears and a smart investor will hold through rough times and good times in a business they believe in.

[WAKEUP]

"So I guess the reasoning now is that folks will pony up $3000 for a Mac but not $4 for a latte?" Hey, Todd: Skipping that one latte, per work day, and boycotting fast-food, which ain't cheap, or fast, any more, in favor of the brown-bag lunch would pay most of the cost of a Mac, in a year. And you'd have something better to "sink your teeth into," with the Mac. Starbucks has always been a pretentious rip-off, from Day One. "VANITY, THY NAME IS STARBUCKS." (Apologies to Bill Shakespeare. And yes, I know that's based on an oft-repeated and inaccurate quote, from Hamlet; that's another story, for another day.)

[Vishy Santaprakash]

I personally bought SBUX at 17.60 a share, and although I'm not happy about the recent price, I'm considering adding more shares to my portfolio. SBUX is going to be in for a rough ride in the near-term future (maybe the next year and a half), but I believe that management is making some smart strategic decisions (closing stores, getting rid of unnecessary products, trying to expand overseas growth). Every economy goes through tough times, and thus consumer favorites go crashing; I see this as a pretty good price to enter into a great brand name.

[delcape]

I think with Schultz at the wheel, sbux will turn around. Whoever said "they don't get much business
abroad".. check your facts - they open 3 stores a day worldwide