Investing

No Sign of a Starbucks Recovery

Douglas A. McIntyre

Published: May 14, 2024 6:50 am

After a nose dive in Starbucks Corp. (NASDAQ: SBUX) stock, which has taken it down 28% in the past year to $76 a share, there has been no bounce, which sometimes happens after a sell-off. Perhaps because of deep problems, investors are eager to see the earnings for the current quarter.

What problems can Starbucks management overcome? Probably not the dispute between recently retired CEO Howard Schultz and current CEO Laxman Narasimhan. Schultz inappropriately attacked his successor on LinkedIn. Schultz has long been known as a big mouth and likes to think unusually well of himself, particularly in public. He once said he might run for president of the United States. Nevertheless, results under Narasimhan have been less than perfect. Schultz may not be finished.

The company also has a union problem. After Schultz publicly resisted the unionization of some Starbucks workers, Narasimhan opened negotiations. While this may be a good long-term strategy to keep the workforce motivated, unions are usually able to get better pay and benefits. For a huge retailer, this will be expensive, and that will not be lost on investors.

Starbucks may also have hit a wall regarding store count, at least in the United States. It has over 17,000 U.S. locations in 52 states and territories and 3,103 cities. At some point, Starbucks stores will cannibalize sales at nearby locations. (Other coffee shops are among the fastest-growing brands in each state this year.)

For Starbucks shares to rebound, the company must show that it has overcome at least one or two challenges.