Starbucks Has a Share Price Problem

As Starbucks Corp. (NASDAQ: SBUX) battles to keep unions out of its stores, it faces another hurdle. Its stock price is in trouble.

Starbucks has battled the unions for over a year. Howard  Schultz, who took the company from very small to huge, based on store count and revenue, returned recently. He and the board thought he was a better solution than his predecessor to repair growth trouble. Problems multiplied, certainly with workers, rather than getting better. (Customers are abandoning these 25 brands.)

Schultz was hauled before Congress for what some politicians considered a litany of sins. He had undermined the organizing of unions, fired one major union organizer (for being late to work several times–maybe) and Starbucks has been officially branded as a union buster by the National Labor Relations Board.

The share price of Starbucks is up 4% this year, against a 16% increase in the Nasdaq. Why? Earnings have been reasonable. Revenue rose 8% to $8.7 billion in the most recently reported quarter. Net income rose 4% to $855 million. Investors may be worried about a slowing economy. Of course, they may be worrying about the rising costs of ingredients Starbucks uses in its food and beverages and whether those can be passed along to customers.

The reasons for the share price problem are muddy. However, investors can never turn away from the fact that, at food retailers that pay modest hourly wages, a union’s success will squeeze margins. This potentially extends to companies like Walmart and McDonald’s. But those two do not have that problem today.

The more unionized workers Starbucks has, the more pressure that will be put on the stock. There is always a chance that battles with labor lead to boycotts.

The share price problem at Starbucks is not out of the woods.

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