I've always been overly critical of Starbucks (SBUX).
I covered the company as an equity analyst and remember spending weeks inside the store studying the workflow of each department. It was an extreme act and didn't win me any fans among Starbucks executives (particularly former CEO Howard Schultz), but I was young and had no idea what executives were thinking. They didn't care and believed they had to do so in order to provide proper service. Call stocks.
I lowered my rating on Starbucks to Sell in January 2014, citing the increasing complexity of its operating system, which was negatively impacting margins, sales potential, and employee relations. . Then I wrote an op-ed for CNBC and hunkered down on a conference call hoping investors wouldn't get burned. It also failed to win Starbucks fans.
More than 10 years have passed since then, and my job has changed. I've personally evolved (but just in a different way, I'm just as enthusiastic as I was in 2014) and in a day he drinks 15 cups of coffee (5 cups and he 1 energy drink). is gone. But as I sit here today thinking about Starbucks' terrible, terrible earnings release last night (a byproduct of a terrible quarter), and watching its stock plummet a shocking 12% pre-market (this is Starbucks! ), Starbucks reflects the company I remember in 2014. Some people throw 97 pieces of gum at the wall hoping something sticks.
And management's all-you-can-eat mentality isn't good for shareholders either.
Here's what I didn't like about this quarter and phone:
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The company's new products, such as the lavender latte, haven't resonated 100% with consumers. why? Like many new products released recently, it doesn't taste good (try it, it doesn't!). What's happening in that research and development lab?
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The company is at a loss as to what to do to regain steady growth in sales. In the future, the company plans to introduce drinks made with beads, also known as pearls, to add texture and compete with boba tea shops. This comes alongside the introduction of zero-carb options, energy drinks and tomato and mozzarella sandwiches. All of this can become an operational nightmare, with contentious relationships with overworked store employees, and products that may not resonate with consumers. If I want an energy drink, I go to the cooler section of 7-Eleven.
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The company is stepping up efforts to cater to nighttime crowds. why? We don't drink coffee before bed or go to Starbucks during happy hour at work. It's Starbucks. Buy me two coffees right away before noon (maybe with a discount). Don't let it taste burnt. that's ok.
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China's performance has fallen off a cliff amid expanding discounting.
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The company isn't providing enough value to consumers who sometimes complain about cost-conscious consumers, who argue that there's no need to pay $7 for a Starbucks iced coffee when McDonald's (MCD) coffee tastes amazing. .
As Jefferies analyst Andy Barish pointed out this morning,
“Many factors are at play here, including widespread consumer insensitivity to restaurant discretionary spending, but recent menu innovations (lavender, oleato) are simply We believe that it has not been well-received by consumers. Please keep an eye on the attrition rate from the second quarter.'' April continued to see headwinds despite Lavender's late-quarter launch. We are also skeptical of the new products planned for this year ('Pearl', Energy) and believe there will be a refocus on the core menu and other drivers. Value, promotion, loyalty, operational improvement, marketing are the key drivers that are smart and seem to resonate, all else considered. ”
Barish is spot on.
CEO Laxman Narasimhan has officially been in the top position for a year. Since he took over, each quarter has been more and more disappointing than the previous. He and his team have offered various excuses, including blaming last night's conference call on bad weather.
The important thing is that the honeymoon is over for Narasimhan and he will now be in the hot seat. If the company doesn't stabilize after a number of new initiatives this summer, he'll take his favorite Starbucks coffee, the Doppio Espresso Macchiato, and move it out of its Seattle headquarters in 2025 to another location. I may end up taking up another position.
