[ad_1]
This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
I have had a checkered history with Starbucks (SBUX).
As an analyst during the Howard Schultz CEO era, I would camp out in stores for days studying everything the chain was doing wrong (and right). The stock was always priced for perfection, and I was trying to ensure that clients wouldn’t be left holding the bag. My ensuing critical research reports weren’t well-received by Starbucks.
I still remember Schultz telling me to f*** off at an analyst day. I wasn’t amused in the moment by a billionaire’s lack of verbal control, but the next morning, I was back to my chipper self. You can’t take this stuff personally.
More than a decade later, I’m now a journalist with no bones to pick with Starbucks — just one providing context on this important stock.
Current Starbucks CEO Brian Niccol is hard to root against. I originally met him at a Taco Bell investor day in New York City, maybe nine years ago. He was a good leader then and a better one today with a successful Chipotle (CMG) turnaround under his belt.
The problem is that Starbucks’ business isn’t yet showing the Niccol magic. You can see the seeds he planted beginning to sprout — service times improving, sales not falling off a cliff, menus streamlining. In the quarter announced this week, the company teased a “wave” of innovation such as protein cold foam coffee, shorter mobile order pickup times, and a potential sale of part of the struggling China business.
But again, Niccol’s magic beans have barely sprouted green shoots, with Niccol almost one full year into the job.
What Starbucks delivered in the quarter:
-
Operating profit margins crashed in every business segment year over year.
-
Overall operating margins plunged 660 basis points from a year ago.
-
US same-store sales fell 2% on the back of a 4% traffic drop.
-
Earnings per share tanked 46% from a year ago.
-
No guidance provided.
“Unfortunately, I think there were some choices made before me that really set us back on our ability to create that great customer connection between our barista and customer and provide the type of customer service that the Starbucks brand, frankly, is known for,” Niccol told me on Yahoo Finance’s Opening Bid (watch above).
Some investors are clinging to the positives Niccol noted during the earnings call.
They include low double-digit percentage same-store sales growth at college locations, improved transaction trends in the US toward the end of the quarter, and the aforementioned “wave” of menu innovation. Starbucks will also spend $500 million during the next year on increased labor investments — shy of Street whispers of about $1 billion.
[ad_2]
Source link
