Starbucks (SBUX): Coffee Costs Give Margins Another Squeeze

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Starbucks (NASDAQ: SBUX) retrained most of its store workers last week. Howard Schultz, the returned founder and CEO, has replaced a number of the lame-brains in senior management.

It would be hard to tell from the stock price that any of this was more than wasted energy. The shares dropped 10% in February to finish at $18.71.

Wall St. understands that with slowing growth in the US, Starbucks earnings are still exposed to poor year-over-year comparisons as the quarters are reported during 2008.

But, the company may have a more serious problem. The cost of milk has gone up over the last year. Now the price of coffee is taking off. According to The Wall Street Journal "The price of green coffee beans has risen 22% since the beginning of the year in trading on ICE Futures U.S." While Starbucks buys most of its coffee under long-term contracts with set prices. However, those deals will not protect the company’s cost of sales margins forever.

Starbucks investors have one more headache. and they may have it for a long time.

Douglas A. McIntyre