24/7 Wall St. Insights
- Starbucks Corp. (NASDAQ: SBUX) posted poor quarterly results again.
- An activist investor aims to shake things up at the coffee purveyor.
- Also: 2 Dividend Legends to Hold Forever
Starbucks Corp. (NASDAQ: SBUX) comparable store sales dropped 3% last quarter, which is a disaster for what used to be a rapidly growing company. Revenue was down slightly to $9.1 billion, and net income dropped almost 8% to $1.1 billion. The poor results belong to a relatively new chief executive officer, Laxman Narasimhan. He said, “Our three-part action plan is beginning to work and driving operational improvements that we expect to improve financial performance.” That means exactly nothing.
Who Will Shake Things Up?
Starbucks is being hammered by aggressive institutional investor Paul Singer and his activist hedge fund, Elliott Investment Management. Among his recent moves was to agitate for change at Twitter, which was still a public company, as he tried to push out CEO Jack Dorsey. Eventually, Singer got a seat on Twitter’s board. Then Elon Musk bought Twitter.
Singer is so aggressive that he bought the sovereign debt from Argentina. When the country set a deal to buy out the debt holders, he thought it was too cheap. He sued the entire country. He reached a deal with Argentina and got a better payout than it had offered.
Singer will press for a board seat at Starbucks and try to replace Narasimhan. He will demand expense cuts and probably want to reduce the bloated Starbucks system of 18,198 stores. If he does not get what he wants, he will sue the company and try to push out some portion of the board.
Singer has found a good target in Starbucks. Investors are tired of poor results, often based on poorly run stores, long wait times for customers, and trouble with unions. The coffee company’s stock is down 25% in the past year. Singer will have allies among institutional investors. Watch for him to get management fired and a reduction in workforce and locations—all meant to improve margins and the stock price.
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