Starbucks Stinks

What does Wall Street think about Starbucks Corp. (NASDAQ: SBUX) earnings and new CEO Laxman Narasimhan? Very little, it turns out. The coffee shop company’s stock is up only 2% this year, while the broader market is up 20%. This happens during a period when, after being an apprentice CEO, Narasimhan took over from long-time CEO Howard Schultz. Maybe the board should bring Schultz back again. (These big company CEOs are paid 1,000 more than their employees.)

New Starbucks earnings were disappointing as far as revenue was concerned. CNBC said, “Starbucks on Tuesday reported quarterly earnings that beat analysts’ expectations, but its same-store sales missed Wall Street’s estimates.” Reuters made similar comments.

Starbucks earnings were not all bad by most other accounts. Same-store sales rose 10% from a year ago. Revenue was up 12% to $9.2 billion. Earnings were up 25% to $0.99 per share. Starbucks has grown to have over 37,000 stores.

Narasimhan said the company’s Reinvention Plan was working. One must wonder what that plan is beyond revenue and same-store sales increases. Companies often give names to these initiatives, although they do not mean much.

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No other public company is a perfect match for Starbucks in terms of stock price. McDonald’s, sometimes used as a comparison, is up 10%. But Starbucks does not serve hamburgers or milkshakes. The coffee shop company can only be compared to itself, historically. Over the past five years, Starbucks stock has increased by 94%.

Investors may see a Starbucks store on too many corners around the United States and think the market is oversaturated. Starbucks says this is not true, that it can continue its growth at home and overseas.

The only certain thing is that Narasimhan has been a poor steward, at least for shareholders. He will not keep his job for long, if the past is prologue.

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