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