When Starbucks recorded a not-amazing same-store sales increase of just 4% for June, compared to a more typical comparable-store increase of 6% in the previous month, those more-caffeinated investors all held our collective breath (it's a short breath, you know, coffee has a way of making one's heart race and one's breath come shallow and fast). As Michael Canfield pointed out: could this mean Starbucks had become mature? Or was it, as Starbucks management posited, simply the impatience factor: customers tired of waiting in line for banana coconut frappuccinos?
It's a long-subscribed-to axiom that you can't have both quality and quantity. And in my opinion, Starbucks' quantity has finally increased to the point that its quality is problematic. A local one-time Starbucks manager who recently opened his own coffeeshop told me that he shook his head when his employer switched from the authentic but sometimes difficult-to-manage mechanical espresso machines to the simple, fast, industrial push-button variety. As a coffee aficionado, one who's spent her share of time behind a coffee counter, I can attest: Starbucks lattes are no longer almost as good as the ones from Gladstone Coffee down the street (they serve up locally-roasted beans from the fabu La Marzocco machine).
The drip coffee I've had recently was tinny, burnt-tasting, flat; and when compared to the vast variety of single-estate, organic, and small-batch beans I've been sampling at other outlets? The choice is clearly not Starbucks. Even the baked goods, which are made with the same recipes worldwide, have lately been inconsistent in quality and freshness.
David Kretzmann is investing thanks to the considerable room for international expansion. I'm a big believer in the community-building aspects of Starbucks and the power of the brand; when a new outlet opened in my neighborhood, mamas, police officers and real estate agents from blocks around were drawn to the store like ants to a spilled bottle of Torani Almond Roca syrup. I think Starbucks still has some staying power, and I'm still a reluctant believer in the company thanks to its considerable fundamentals. But if quality continues to fall at the same rate quantity rises? I'll be moving into the selling column, and fast.
Chasing Value: Apple may be one again
Microsoft & Google: Battle in the clouds
GM, Ford and Chrysler CEOs to present new plan tomorrow at U.S. Congress
Reader Comments (Page 1 of 1)
8-05-2006 @ 7:16PM
Mr. noitall said...
Anybody who's read my past comments about Starbuck's knows how I feel about investing in the stock. Don't buy it, and sell if you own it. I don't know who the bigger fool is the one who buys their overpriced products or the one who buys their overpriced stock!
8-06-2006 @ 5:14PM
Andrew Sellers said...
my own analyses on this firm (SBUX) is that intrinsic valuation measures put the issue between us $22.00 to US $25.00. as a growth stock, starbucks will almost always trade a few dollars above that. a strong buy is recommended by this analyst if the price falls to $25-29.
and I still find the dark roast fairly tasty.
8-06-2006 @ 5:24PM
Andrew Sellers, MBA, CLU said...
Most franchises and chains, traditionally, are very capable of monitoring their quality. Starbucks is hardly too big to maintain quality control, however, their personnel are far from culinary instititute grads. Nevertheless, I've only had a few cups here and there that were disagreeable.
As an investment, yes, it trades a bit high at $30 per share; RI & FCFE valuations indicate a price between US$22-25 is warranted. If it dips much below $29, I'll likely pick up a few thousand shares.
8-06-2006 @ 5:42PM
CrossProfit said...
Trend change - that's what it is all about.
See this article...if you were following the site (CrossProfit.com) you would have had another chance to sell at $36 in July.
http://stocksadvice.blogspot.com/2006/08/guest-author-crossprofit-some-retail.html#links
For now SBUX trades at $30.40 +/- 8% until next earnings report.
http://www.crossprofit.com
8-06-2006 @ 8:29PM
Mr. noitall said...
You're right, CrossProfit, I mentioned many times that Starbucks is a "fad" which is the same as saying its a passing fashion or trend. And it hasn't yet felt the effects of any major economic downturn.
At $4 per cup their coffee has to be considered a luxury item. Maybe the luxury items that the ultra rich buy will hold up during hard economic times , but Starbuck's products don't fall into that category. I said once before, I personally would rather spend my money on something cheaper...like gasoline.
8-07-2006 @ 12:20AM
Morris said...
Having worked in manufacturing and healthcare technical clinical positions as a manager for the past 45 years (now retired & enjoying it)and being hands-on as well as technically educated with production and very high performance quality systems, I wish to state that there is no "axiom that quantity and quality" cannot be compatible. Indeed, Toyota's mere existence is based on optimizing both components and they are, hands down, the best auto manufacturer worldwide. No, the issues with Starbucks are in my opinion: Too many oddball flavors, the recent heat wave world wide and the price of gasoline at $3.oo plus per gallon. I have been drinking Starbucks coffee since 1979 or so and find it the most reliable brand in the world (we travel a bit). I dont own the stock but might purchase one day soon. I think they have a bright future provided they work hard and keep pricing reasonable.
8-07-2006 @ 9:36AM
Brian said...
My personal observation is that all Starbucks stores I pass tend to be full of people buying something to eat or drink. They must be doing something right.
8-07-2006 @ 3:36PM
Michelle said...
Same store sales is little misguiding indication for Starbucks since their rapid qrowth of number of stores. I've owned this stock for 3+ years with very good return. I think that may even add some more at these levels.
8-15-2006 @ 4:50AM
CrossProfit said...
Michelle-
Wait for 26/27 range. Don't hold on too long, sell at 30/31. This is a trade stock now -NOT- a buy and hold investment at current PE.
CrossProfit