Elliott Global Management, run by famous activist investor Paul Singer, has taken a position in Starbucks (NASDAQ: SBUX | SBUX Price Prediction), the troubled coffee shop company. Singer is known for battering management at public corporations to lift stock prices, often by trying to push out senior executives. He is also known for buying a position in Twitter when it was still public and attempting to get the board to fire long-time CEO Jack Dorsey.
According to the FT, “Elliott had pushed for change behind the scenes in recent weeks, the people said.” Starbucks is a tempting target. Once among the world’s largest and most successful fast food chains, its stock has fallen 22% in the last year, while the S&P 500 is up 17%. If rumors about Singer’s activity had not leaked, which caused the shares to rally, the stock would be down by about 30% during the same period. Starbucks’s share price has fallen sharply.
Laxman Narasimhan, Starbucks’ new CEO, has admitted that the company has underperformed. When the latest earnings were released, he said of the results, “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”
Starbucks has been damaged by slow service and aggressive location expansion. There have been widespread observations that people who order remotely from phone apps often compete with customers who buy food and coffee by ordering at the stores in the morning. Wait times have gone up to as high as 40 minutes. Starbucks’ store count has risen to 38,915, and the company intends to expand further.
Starbucks has been considered a growth company for years. However, in the last quarter, year over year, same-store sales dropped. Revenue fell an unusual 2% to $8.6 billion, and earnings per share fell 17% to $.68.
While Singer has not publicly disclosed his plans, they won’t be good for management.
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