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Why Wall Street hates Starbucks

Posted Mar 30 2008, 08:26 PM by Douglas McIntyre
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Starbucks has been a disappointment recently. Same-store sales in the U.S. slowed over the last couple of quarters. The company pushed down its guidance. Founder Howard Schultz kicked out his CEO and took over.

In late 2006, Starbucks traded over $40. It is well below that now -- under $18 on most days.

Right as the stock peaked, then-CEO Jim Donald made the audacious statement that the company would eventually have 40,000 stores. On the day he said that Starbucks had 12,440 stores. Looking back, it is almost certain the his prediction had no chance of becoming a reality. But, the $40 share price had gone to his head. He had become delirious with success.

Schultz and company has to live with echos of that forecast, and they will have to for some time. (For more about Starbucks' troubles, read this and this and this.)

It is not unlike a statement made by AMD in the middle of 2006. It would end up with 40% of the market for server chips by mid-2009. AMD was trading at $36 or so when the company made that prediction. Since then larger rival Intel has beaten it like a red-headed mule. AMD is now a $6 stock and that is not likely to get better. It has about 20% of the server market.

Outsiders say that Wall Street doesn't have a long memory. That may be true in some cases, but it does tend to remember the big promises from big companies. Better to keep your mouth shut and let the numbers speak for themselves.

Comments

 

I buy coffe from Starbucks every morning it is $1.98 for a 16oz cup.  While its true some of their other drinks are more expensive, I believe a cappachino from Dunkin Donuts is also more expensive then its coffee.  The same size coffee from D&D is about .50 cheaper but the service is awful  and it tasts different everytime.  I like to buy my coffee from a place that doesn't sell personal pizza's and hamburgers.  I will pay more for great qulaity and service anytime.

One reason Starbucks is tanking is that people are finally realizing that their expensive frou-frou coffees (lates and mochas) have more calories than a McDonald's Big Mac!  People should not be surprised why some taste so delicious, with all the extras like chocolate, caramel and cream on them. Reality check!  I have been studying Starbucks for several years as part of my MBA, wondering why they continued to grow, when they should be tanking.   Finally, my prediciton is coming true. Starbucks recently said that they will start selling coffees at only $1 and offering free refills.  I predict this won't work either, because lines will be too long and it will attract freeloaders who sit there all day taking up the few reamaining seats and going back for free refills.  The best part of Starbucks is that they treat their employees better than most places and actually offer some benefits thereby attracting a better cut of employee and a better crowd.  It's fairly obvious when you go into a Starbucks that  the workers appear to be from a different demographic than your average McDonalds or Burger King employee, for example. It's like when you go into an Ambercrombie & Fitch store, they have an image that they maintain. Of course they were sued for their hiring practices too, but that's another issue.  Starbucks also pays more to its coffee growers overseas, supposedly a 'living wage", but I have to wonder if its true.    

Dunkin Donuts coffee is better.  Doesnt have that bitter burnt taste

I love their frappacinos and will spend whatever for them. I was not a true coffee drinker, but something about this drink that I cannot refuse. I'll support the economy by continuing with my frapps. DCL93

Dunkin' Donuts coffee is the best. you should drink it all day.

You I*diots all this about coffee lets talk about something that really matters!!!

the few times i've been in a starbucks i felt like a total tool.  It's like the fable about the naked emporer.  What am i missing?  Everything is so overpriced and pretentious.  I mean come on it's a cup of coffee not a lifestyle experience.  If your life is so rotten that the way to improve it is by showing off how stupid you are because you can way overpay for something, then you just don't get it.  It's taken a while and a few down to earth competitors to get people thinking, "Hey $5 for a cup of coffee is really stupid."

 I LOVE my Starbucks in the morning, and all day really. I do not mind paying more since you get what you pay for. I don't understand why you all say that it's stupid! We all make choices, so if you like your crappy cup of coffee great, but leave Starbucks lovers alone!

i say there is no coffee like the one brewed at home. it not only tastes better,its cheaper and the aroma fills the whole house. if you want to look like you just purchased a $5 cup of coffee buy those cool throw away non styroform cups & trot to town with it no one will know the dif.

If you have ever watched any money manager explain how to trim you budget, they never fail to mention the Starbuck's syndrome, which is another name of how much of your monthly budget is pissed away thanks to $5 or $10 day lost to Starbucks. When you add that up over a month or year, you get some serious change. Its almost a car payment for a 2008 Honda Civic, each and every month that you are throwing down the drain.  What I do is buy the nice ground coffee for $5 bag and it costs me only pennies a cup. I just make it at home and bring a thermos with me. No need to waste time with finding a parking spot or waiting in line.  Of course, some people go to Starbucks to show that they can afford expensive coffee while sticking up their pinky finger while drinking, ha. Rediculous.  

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