Starbucks’ (NASDAQ: SBUX | SBUX Price Prediction) stock is down 10% in the last year, while the S&P 500 is 12% higher. Over five years, the stock is down 20% while the S&P is up 62%. Recently, The Wall Street Journal wrote that “Starbucks Has Its Shine Back, CEO Brian Niccol Says.” Not so. Niccol began his tenure as the coffee store company’s Chairman and CEO on September 9, 2024. Not yet.
After years of weak quarters, Niccol’s only evidence was a better-than-bad, mediocre one. Revenue was up 5% to $9.9 billion. However, the bottom line dropped 62% to $293 million (EPS $.26). Niccol commented, “Our Q1 results demonstrate our ‘Back to Starbucks’ strategy is working, and we believe we’re ahead of schedule.” The bottom line doesn’t point in the direction.
Niccol’s argument relies on several points, none of which have been proven to aid recovery. Baristas tend to dress more uniformly. The menu has been slimmed down. The “rewards” program is “strong.” Additionally, “morning loyalists love the rich and wonderful ritual of their Starbucks order.” Some stores will have “uplifts,” which create a sense of comfort and community.
The challenge for investors is that almost all of Niccol’s arguments are soft, even if some turn out to be true. That means investors have no real visibility beyond results.
Anyone can make soft guesses. The Iran war has pushed oil higher, and with it, diesel. Do truckers try to pass that along through the Starbucks supply chain? If so, all fast food companies have a problem. Also, there is a global shortage of coffee and cacao beans. Has Starbucks hedged those, or are its costs of goods about to rise?
Americans are feeling pinched financially to the extent that McDonald’s (NYSE: MCD) has introduced $3 meals. Starbucks does not have much on its menu that sells for $3.
And, the friction with labor has not gone away. The Starbucks Workers United has used strikes as leverage. Labor union activist investors are trying to force some members off the Starbucks board. It won’t work, but it is another management distraction.
Niccol has not shown that there is any path to a high stock price, because at this point, there isn’t one.
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