Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Can Starbucks Grind Forward?


Howard Schultz has a lot of work to do and it's entirely unclear if he can recapture Starbucks glory.

Hello from New York where I'm drinking sugar free Red Bull but I'm thinking about Starbucks (SBUX) after last night's return of CEO Howard Schultz. Schultz returns to a deeply wounded company and stock. Growth has slowed, McDonald's (MCD) has set a bullseye on coffee and "The Starbucks Experience" Schultz was bemoaning last year at this time has only gotten worse.

I think the return of Howard Schultz marks a near-term (read: at least 6-month) bottom for Starbucks stock at Friday's $18. Whether you buy into the idea that Howard can fix the company for the long term is almost irrelevant in terms of the trade. For a trade on the stock, "bad news" will no longer drive SBUX. Bad news is now part of the turnaround process; it won't send the stock lower.

Fundamentally, the meat of Schutlz's Jerry Maguire memo was his feeling that going to Starbucks had become a miserable, corporate experience. While I'm leery of Howard going crazy on the expense side to try to turn Starbucks into dive-pads for coffee drinking beatniks, I also believe that the best "tell" for Starbucks' failing fortunes has been visible in the outlets for years. The stores are slow, sloppy and slipping. If Starbucks does nothing other than once again have enough pride of place to keep the milk stand clean it will lead to improved same-store-sales.

This isn't a straight shot back to $40 for SBUX. Howard Schultz has a lot of work to do and it's entirely unclear if he (or anyone else) can recapture SBUX's glory. That said, Starbucks is no longer a short. The best parts of the short catalyst ("flagging chain, weak results, increased competition, in denial") are gone. The short trade is over; sometimes that's enough to start a long position.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos