When legendary coffee peddler Starbucks (NASDAQ:SBUX) reports first-quarter earnings Wednesday night, it's doing so from the weakest position the company has seen in years. Did America get over its lengthy addiction to orange mocha frappucinos? Or is there a new recipe for success in the Pacific Northwest? Let's do a quick sniff test.

What Fools say
Here's how Starbucks' CAPS rating stacks up against some of its peers and competitors:

 

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating (out of 5)

Procter & Gamble (NYSE:PG)

$168.3

15.0

*****

McDonald's (NYSE:MCD)

$65.1

14.7

****

Starbucks

$6.6

21.1

**

Green Mountain Coffee Roasters (NASDAQ:GMCR)

$1.0

45.6

**

Peet's Coffee & Tea (NASDAQ:PEET)

$0.3

27.4

***

Data taken from Motley Fool CAPS and Yahoo! Finance on Jan. 27.

CAPS player btukwh channels the spirit of Peter Lynch to analyze the company's chances: "The line at 3 of my local [Starbucks] stores has gotten short. There are maybe 6 in a two mile radius of my home. When it gets down to two stores then it'll be a buy." The stores and the products are great, btukwh argues, but there's simply too many of 'em. "Have another look in two years and buy half off the current price."

Despite disagreeing with btukwh's pessimistic rating, digiferret agrees with some of that analysis: "Closing the US stores is a good thing. The experienced Barrista workforce was spread too thin in the past, and this gives a chance of re-emphasizing quality over quantity. Global diversification stands a much better chance of success than sticking two Starbucks on a street corner."

What management does
The gross margins haven't been this skimpy since 1997, and the coffee giant's sales growth has never been this slow. Add it up, and you get earnings shrinkage rather than growth. If you want to look on the bright side, Starbucks is still profitable and tends to generate some free cash rather than destroying it. But again, the growth is gone.

Margins

7/2007

9/2007

12/2007

3/2008

6/2008

9/2008

Gross

58.0%

57.5%

57.2%

56.8%

56.1%

55.3%

Operating

10.1%

10.1%

9.7%

8.9%

7.7%

6.3%

Net

7.0%

7.1%

6.9%

6.3%

4.5%

3.0%

FCF/Revenue

2.4%

2.7%

3.9%

2.8%

3.2%

2.6%

Growth (YOY)

7/2007

9/2007

12/2007

3/2008

6/2008

9/2008

Revenue

20.6%

20.9%

19.7%

17.7%

14.9%

10.3%

Earnings

13.7%

15.7%

10.4%

(0.3%)

(27.7%)

(53.1%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says
Is it gone for good? That depends on the fundamental causes of Starbucks' recent weakness. Is it consumers pulling back on their latte consumption to combat their financial problems? Then I suppose the company will be able to climb back to 58% gross margins and renewed earnings growth once those darn banks get their acts together and everyone else shakes the aftershocks out of the system.

Or maybe Seattle's finest can't handle increased competition? Peet's has beaten the S&P 500 benchmark over the past year, and Green Mountain even showed positive returns, so this swoon can't be a sector-wide malaise. And McDonald's opening coffee shops in its equally ubiquitous stores can't be good news for Starbucks and the other pure-play caffeinistas. Heck, even energy drink specialist Hansen Natural (NASDAQ:HANS) is going after coffee-craving consumers these days.

A massive store network with highly refined supply-chain logistics coupled with the Starbucks brand name should form a solid base from which to mount a counter-attack. What's missing today is a clearly defined idea of exactly who the company really is and where it is going. And no, hiding under a rock and waiting for the economy to turn around doesn't count as a strategy.

I'm listening in to this conference call with an ear peeled for new ideas, because the old ones haven't seemed to work. But my expectations are very low.

Have another cup of Foolish brew:

Starbucks is a Motley Fool Inside Value pick and a Motley Fool Stock Advisor recommendation. The Fool owns shares of Starbucks and Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CUPS ... sorry, CAPS account to read more from your fellow Fools who were quoted above!

Fool contributor Anders Bylund is a Hansen Natural shareholder, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.