Over the course of the year, Starbucks (NASDAQ: SBUX) shares fell from $36.61 to $20.60, near their 52-week low. The company's revenue is still growing about 20% year-over-year. It may be hard to believe that such a strong financial performance would not command a higher price.
But, the Starbucks management team has done an unusually poor job of convincing Wall Street that its plans for the next year are likely to yield stronger same-store growth, especially in the U.S. The company talks about eventually having 40,000 stores worldwide, but has yet to give a convincing explanation of how it will get there.
The big knock against the coffee chain is that it has too many stores in the U.S. That would lead most analysts to believe that the stores actually compete with one another for business. And, with the big McDonald's (NYSE: MCD) push into premium coffee, Starbucks is trying to get market share in a field that is becoming more crowded.
Investors are also not convinced that recent additions of exclusive music releases sold only in its stores and a relationship with Apple (NASDAQ: AAPL) iTunes will bring in more customers.
More than anything else, Starbucks currently suffers from being less than open about its business. How is the new deal with Apple going? How are same-store sales running during the holidays? What is the firm doing about the rising price of milk, which is an ingredient in many of the company's drinks?
Wall Street hates lack of news. It often takes silence as a sign of poor performance. Until management steps forward with a cogent plan for improving the company's domestic sales and some information about how new initiatives are doing, it can expect its share price to drift lower.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-23-2007 @ 8:26PM
Mr.noitall said...
Yes, things didn't get better at "fad" company Starbucks. The whole gourmet coffee fad has ended as I predicted. When other "experts" were telling you all to buy this great growth stock, I advised you all sell. There is nothing special about Starbucks anymore, it's just another mediocre company, trying to sell an over-priced product.
12-24-2007 @ 10:06AM
joe said...
I agree that it is overpriced. I used to pay that price because I enjoyed sitting in a relaxing place while reading or doing work related tasks. Now, however, the clientile is such that it is anything but relaxing. Noisy high schoolers hang out for hours and complaints do little since many of those who work at Starbucks are friends with those hanging out. Sometimes it includes the workers who are more interested in socializing that working. To solve this problem corporate needs to put into place clear rules for dealing with any inappropriate behavior. Managers need to do their part to train staff and make sure they abide by those rules.
12-24-2007 @ 7:35PM
Antonio Goicochea said...
I agree.
I think Starbucks stock will continue to be a loser for for sometime for several reasons . . .
•Dairy prices have risen
•Coffee prices will probably rise due to a reduction in global coffee production due to inclement weather earlier this year (and if I'm correct coffee prices are elevated at the moment)
•Competition from Dunkin Donuts and McDonalds
•Coffee is more a "want to" than a "have to"
•The dropping value of the dollar as well as the current state of the economy
•Because the dollar is getting weaker and weaker and because of the state of the economy consumers will spend less money on non-necessities or will continue to purchase less expensive substitutes. Meaning we will see more and more consumers purchasing less and less expensive coffee - so long as it recognizably tastes good, consumers will purchase it, thus since few people are connoseiurs, they will probably try coffee from Dunkin Donuts or a McDonalds at some point and realize they can purchase decent or good tasting coffee for less, and they wont care if the coffee is robusta or arabica, etc, etc. - this same phenomenom analogously happened when mp3's came about - who would have guessed 15 years ago that the dominant delivery format for music would have had at best a quality level that is 90% less than CD's? (The best mp3's only hold about 10% of the original information from the CD data file, however to consumer's they sound the same as a CD in terms of quality, and mp3's are highly portable compared to compact discs).
Starbuck's will have to find way to cater to more individuals. This is clearly the case with Dunkin Donuts and McDonalds plus the recent price hikes in the past 2 years including the 9 cent price hike earlier this summer has not helped Starbucks either. As a result for the first time ever in Starbucks history, store traffic has fallen.
12-28-2007 @ 6:41PM
wily said...
SBUX needs to reinvent itself. They are making too many errors that add up to a poor image. That image isn't helped when they are selling mugs made in China with handles that keep falling off. SBUX can't help it but it doesn't do them any good for everyone to see Brittany camping out at their stores everytime they turn on the TV. I always order a simple no room Americano. One third of the time I find it a little over half full.