Why Wall St. Hates Starbucks (SBUX)

March 28, 2008 by Douglas A. McIntyre

Starbucks (NASDAQ: SBUX) has been a disappointment recently. Same-store sales in the US slowed over the last couple of quarters. The company pushed down its guidance. Founder Howard Schultz kicked out his CEO and took over

In late 2006, Starbucks traded over $40. It is well below that now, under $18 on most days.

Right as the stock peaked, the then-CEO Jim Donald made the audacious statement that the company would eventually have 40,000 stores. On the day he said that Starbucks had 12,440 stores. Looking back, it is almost certain the his prediction had no chance of becoming a reality. But, the $40 share price had gone to his head. He had become delirious with success.

Schultz and company has to live with echos of that forecast, and they will have to for some time.

It is not unlike a statement made by AMD (NYSE: AMD) in the middle of 2006. It would end up with 40% of the market for server chips by mid-2009. AMD was trading at $36 or so when the company made that prediction. Since then larger rival Intel (NASDAQ: INTC) has beaten it like a red-headed mule. AMD is now a $6 stock and that is not likely to get better. It has about 20% of the server market.

Outsiders say that Wall St. does not have a long memory. That may be true in some cases, but it does tend to remember the big promises from big companies. Better to keep your mouth shut and let the numbers speak for themselves.

Douglas A. McIntyre

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