As if Starbucks (NASDAQ: SBUX) did not have enough problems, a huge institutional investor has taken a position in the company and is likely to push for strategic and management changes. According to an exclusive report in The Wall Street Journal, “Activist investor Starboard Value has a stake in Starbucks and wants the coffee giant to take steps to boost its stock price, according to people familiar with the matter.” Starboard has also attacked the management of eBay (NASDAQ: EBAY) and Salesforce (NYSE: CRM).
Starbucks already faces an investment from corporate raider Elliot Investment Management, run by Paul Singer and former CEO Howard Shultz, who has run the coffee company three different times. Part of the reason for the attacks is that Starbucks, once a growth company with a strong stock market performance, has a stock down 22% this year, while the S&P 500 is up 12%. Some investors wonder why Starbucks has not fixed its problems already.
One focus of the attacks is new CEO Laxman Narasimhan, who ironically was picked by Schultz. Earnings under Narasimhan have been poor. He has come up with two reasons. The first is that customers are walking away from fast food chains. McDonald’s management has essentially said the same thing. The quality of service at Starbucks has fallen off, a problem Narasimhan says he is addressing.
In the most recently reported quarter, revenue was flat at $7.5 billion. EPS dropped 6% from the same period the year before to $.93. “Our three-part action plan is beginning to work and driving operational improvements that we expect to improve financial performance,” Narasimhan said. So far, that is not working, although he has put in place ways to make stores and workers more productive.
It is rare that two activist investors and a former CEO gang up on a company. Starbucks has that unfortunate distinction.
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