My friends will tell you that I am not a big fan of Starbucks (NASDAQ: SBUX), the coffee nor the company. Yes, I will occasionally stop in and get a grande latte -- but only if I am nowhere near a McDonald's (NYSE: MCD) and I absolutely have to have some caffeine. Not only is MCD's latte comparable in taste, but it is cheaper ... a characteristic very important in our current economy. It seems that other latte lovers are taking the same route as yours truly, as SBUX saw its quarterly earnings fall short of the consensus estimate.
In the latest quarter, SBUX earned 15 cents per share (excluding charges), which fell two cents shy of the Street's expectations. Moreover, these results were 13 cents short of last year's same-quarter results. Sales at the caffeine king's outlets dropped by 5.5% to $2.6 billion, which means a lot of folks are taking their business elsewhere. (Although, let's not forget that SBUX CEO Howard Schultz once said that MCD is not serious competition to his company.) For the fifth straight quarter, SBUX saw retail traffic fall.
So, how does the company try to recoup some of its losses? Easy, lower prices and trim the smug attitudes. WRONG, the company announced yesterday that it is going to close 977 stores that will result in nearly 7,000 jobs lost. The company announced that it would close 616 American stores in the summer, adding that the company would curb store expansion.
Bottom line, no matter how many stores SBUX closes or how many employees it lays off, it has an uphill battle to return to profitability. The exploits of Howard Schultz read like a comedy sometimes; but his bad decisions do not compare to the company's far-too-rapid expansion and far-too-expensive menu offerings.
Although the stock rallied, the lord of the latte faces quite an uphill battle. The shares face resistance at the $10 level, which has acted as resistance twice in the last month. If this level rejects the stock again, we could soon see SBUX dripping lower.
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