Not a fan of Jim Cramer at all, but did anybody catch his interview with the Starbucks CEO this morning? In August, i posted in here to move away from companies that have moderate to significant exposure to China like Tesla and Starbucks. Both have come down pretty significantly. In any case—Starbucks just reported a pretty horrible quarter and Jim pretty much roasted the CEO this morning.
Starbucks CEO Laxman Narasimhan joins 'Squawk on the Street' to discuss the company's Q2 results, which reported weaker-than-expected quarterly earnings and ...
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That CEO, yeesh. if I wasn't bearish before, I would be after watching that.
I know very little about Starbucks but as a real estate guy, one part of the interview comes off as silly is beating them up for opening more stores instead of focusing on margins when they're getting a 40% CoC return on new stores. A reasonable CoC return target for most investors is 6-10%. If you can get 40% CoC on anything real estate/building related you'd have to be crazy to pass that up and it's ridiculous to even ask why they would pursue that.
That’s a fair point, but I think the point that Jim was making was that the CEO can’t be trusted. A month ago—Starbucks knew that the earnings were going to miss by a mile and said nothing to prepare the markets. The CEO tried to blame 3% of the slowdown to weather concerns—when no other company in a similar field reported anything of that sort. No matter what question was being asked of the CEO—he just kept trying to answer with an “action plan” and his verbage that they “failed in communicating value to the occasional customer” was just CEO talk for “they raised prices sooo much that they scared off a lot of customers that are not fully brand loyal to Starbucks. With the buying power of starbucks, the massive distribution network they have, the best online infrastructure for coffee brands (in regard to their app)—they should be able to deliver almost any coffee for $4-5 and still be massively profitable. They raised prices soo much and expected their customers to tip so much—that the total cost for a Starbucks visit is very easily closer to $10 than $5. This is just driving customers that are not brand loyal to places like McDonald’s, dunkin, Dutch brothers, and 7-11. I have seen a noticeable difference in a slowdown of foot traffic in the Starbucks locations in my area. On the other hand, a Dutch brothers opened up 6 weeks ago—and there are massive lines there every morning.