Starbucks (SBUX): Coffee Costs Give Margins Another Squeeze

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By Douglas A. McIntyre Published

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

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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