Starbucks Corp. (NASDAQ: SBUX) is holding its annual shareholder meeting today (playing right now), and with shares having slid more than 50% from highs it can’t be any shock that the home of "coffeeflation" is initiating its new plan.  For starters, now that Howard Schultz has returned, the company is slowing what was its ridiculous "take over the coffee world" aggressive store opening strategy.  It has also tried to take some of the more time-demanding products that slow down the line at rush hour.

In the first 30 minutes Schultz has noted that the company is very aware of the current challenges and the stock price, and assured that they are all highly motivated to remedy this.  Also noted was that the trends of a slowing traffic trend combined with much higher and record dairy prices that affect it.  International growth is still the big surge, even though it has been slowing US store growth plans.  Consumer products are still in the very early stages and the company believes that will be a $1 Billion segment.  As far as what’s ahead, Schultz said in the long initiative process that there are no sacred cows.  Our own comments on prior releases and issues:

• Retraining benefits?
• On streamlining
• Stock value… $18, $22, or $26?

Analyst estimates have already been brought down over the last quarter yet again and its earnings estimates out of First Call are $0.97 for fiscal Sept-2008 and $1.13 EPS for fiscal Sept-2009.  So at $18.25, its forward P/E ratio for this year is 18.8 and roughly 16.1 for forward 2009 numbers.  As far as valuations are concerned, this is far from dirt cheap and far from expensive.

The truth is that Starbucks hasn’t gone to hell in a hand basket.  It isn’t like you are thought of as a loser if you go there.  But it has lost its mojo and its days of being a growth stock are far behind in the rear view mirror.  Now it is a mature dominant brand that has competition from formerly uncool brands that is nipping it from all sides.

The market cap is $13.2 Billion, down from what used to be $25+ Billion.  So we aren’t talking anymore about "a coffee shop with a 50 P/E…"  Now we are just talking about a coffee shop.  The share price of two years ago no longer matters.  Shareholders of today will just have to look at this as a maturing premium coffee company with a slowing consumer that is looking for ways to trim expenses, and the old mantra of driving real earnings growth will become primary.  Everything else is just spilled coffee.

Jon C. Ogg
March 19, 2008

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