It's no surprise: Starbucks'
Releasing lukewarm net income growth of 2% and 1% same-store sales, the numbers weren't even close to what long-time Starbucks fans are used to seeing. Finding a bright spot in the financials, revenue did increase 17% to $2.8 billion.
Again, high dairy prices dragged on Starbucks' domestic margins. Of course, while this is a difficult time for Starbucks, we've heard many companies complaining about rising commodity costs -- Tyson
Now that Schultz is back, we're seeing glimmerings of the company's initiatives to get things percolating again. We heard about the $1 coffee/free refills test (I wonder if this idea could be adverse to the brand if it were adopted as policy). Also expected, Starbucks will open fewer stores in 2008, and close a few poor-performing ones in the U.S.
However, there's one bit I find difficult to stomach.
Breakfast gone bad
Here's the piece of the story that my coworkers and I found appalling: Starbucks will stop serving breakfast sandwiches. "The scent of the warm sandwiches interferes with the coffee aroma in our stores," said Schultz. "While our customers liked our sandwiches, they told us they missed the aroma and the romance of coffee."
But we really like those sandwiches. I've never noticed they smelled; I've never noticed much coffee aroma, either. Sometimes on the road I've been dying for one and was terribly disappointed if I stopped at a Starbucks that didn't serve them. And talk about inviting hungry people to stop by a McDonald's
Schultz did acknowledge the company could take a short-term revenue hit with this change. The sandwiches are on the menu in fewer than 4,000 Starbucks stores and represent $35,000 in sales for those stores. Granted, though, they are a lower-margin product than coffee beverages, too.
I'm still glad Schultz has returned, and I'm a huge fan of keeping true to the brand -- I wasn't thrilled with the idea of a "Starbucks dollar menu" -- but he might go too far and mistake nostalgia for the old days with progress.
Restoring the so-called "romance" of the upscale cafe, and keeping a strong sense of differentiation from lower-end coffee rivals, the dollar drinks and ditched sandwiches do not go hand in hand.
Hungry for change
I'm still long Starbucks and intend to remain so. This is definitely a tough time for the company, and the soul-searching may often distract. We should all keep an eye on what Starbucks announces at the annual meeting in March. Schultz said in the conference call the company will reveal "five specific, bold, consumer-facing initiatives that will be a major catalyst for change and transformation."
Starbucks stock is trading at a reasonable price now, and the current malaise will probably reveal itself as an opportunity years down the road. Over the near term, I won't be surprised if there is more flailing around as the company gets back into the grind.
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