Starbucks Corp. (NASDAQ: SBUX) cannot reverse the slide in its comparable store sales. They were down 4% in the most recently reported quarter. In the United States, they fell 4%, and in China, they were 6% lower. This drove revenue that was flat at $9.4 billion, compared to the same quarter last year. Per-share earnings plunged 23% to $0.69. New CEO Brian Niccol needs to rebuild the brand’s appeal to consumers to move its revenue higher. His formula, at least as he has articulated it, is thin.
24/7 Wall St. Key Points:
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Starbucks Corp. (NASDAQ: SBUX) management cannot reverse the slide in its sales.
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An argument can be made that the company has outlived its best years.
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Niccol announced his “Back to Starbucks” plan just after he joined as chief executive in September of last year. The plan was little more than vague, as explained in a letter to partners, customers, and stakeholders. Its frontline workers, known as baristas, need to be “empowered.” Starbucks has become known for long waits to fill orders. He said he would rebuild Starbucks as a local coffee shop. Moreover, he wanted to rebuild the brand, which is a soft goal at best.
Starbucks Hurdles
The company has at least two hurdles it is unlikely to clear. Although it is impossible to give a number, Starbucks has alienated many customers. Each of these has several options, ranging from McDonald’s to Dunkin’ Donuts to local coffee shops.
The company is outgunned in its second-largest market, which is China. It has 7,685 stores there. Local competition Luckin Coffee has over 20,000.
Its problems are not recent. Its shares are up only 18% over the past five years. The S&P 500 is higher by 88% over the same period.
An argument can be made that some companies outlive their best years. Some of America’s largest companies fall into this category, including Boeing, Ford, and Target. Starbucks started to make mistakes several years ago. Management missed the fact that these problems were serious and made little if any course correction.
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