The people over at Bear Stearns decided to kick Starbucks (SBUX) while it is down. Perhaps the company deserves it. The investment house dropped its rating from "outperform" to "peer perform". According to MarketWatch "The company is actively trying to improve trends with its initial TV commercials and new product focus, including ‘skinny’ lattes," Bear Stearns said in a note. "But we think that Starbucks new cyclical sensitivity has more to do with its expanded customer base including less affluent consumers who react to economic pressures."
Bear Stearns is very late on its call. In a little over a year Starbucks has lost half of its share price.
The coffee company’s problem now is that no one on Wall St. believes that current management has a formula to fix the operation.
Last February 14, Starbucks founder Howard Schultz wrote his management "Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand."
Since that note went out, the company’s stock is off 40%. Clearly someone did not get the message. And, there seems to be no reason to believe that this is going to change.
No matter how much Schultz likes CEO James L. Donald, it is time for him to go. Schultz needs to do what Michael Dell did. He needs to step into the chief executive’s chair to demonstrate that he has a full-time commitment to salvaging the company for its shareholders.
Schultz made the company. He invented it. Now, it is time for his to remake it before the stock moves down further.
Douglas A. McIntyre
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