Howard Schultz, the chief executive officer of Starbucks has sent an urgent memo to franchises across the United States: All immigrants who have served as support personnel, or alongside US troops would be given preference in the hiring process. Over the next 5 years, Starbucks has committed itself to hiring 10,000 refugees amid a firestorm of protest against Donald Trump’s immigration plan. The main country targeted by the immigration law is Syria, but 6 other Muslim-majority countries are also included in the list. Schultz is a committed Democrat, and was an ardent supporter of Hillary R. Clinton. In an extraordinary display of defiance, Schultz pushed back against Trump on multiple fronts, including the following:
- Starbucks will continue to support coffee growers in Mexico
- Starbucks will provide healthcare to all eligible workers if Obamacare is repealed and replaced
How is Starbucks Performing with Its Mobile Order and Pay App?
In 2015, Starbucks launched a pay app for mobile orders. It was designed to make Starbucks outlets more efficient. Unfortunately, too many Starbucks customers are using the app, eroding its efficacy, and making it a lengthy and difficult process for the company and queued customers. The chief operating officer of Starbucks, Kevin Johnson, alluded to the long lines that are evident at Starbucks during peak hours. This is a disincentive to customers wanting their coffee in the morning, lunchtime and after work. Mobile ordering has resulted in severe congestion for most Starbucks outlets, according to CEO Howard Schultz.
On Friday, 27 January 2017, Starbucks shares dropped 4%. The reason for this sharp decline is same-store sales decreased across the US and fell shy of shareholder expectations. Of equal concern is the impending resignation of Howard Schultz in 2017. Schultz will be replaced by former CEO of Juniper Networks, Johnson. Investors and traders are reacting negatively to these issues, and it reflects in the lukewarm performance of Starbucks stock.
How do Analysts see Starbucks?
From an analyst’s perspective, there is little to be concerned about. Q1 fiscal earnings for 2017 were not expected to raise alarm bells on Wall Street. When Schultz resigned as CEO in 2000, the stock price dropped precipitously. The CEO and Founder assumed the helm again in 2008, and the stock rallied accordingly. Analysts do not perceive any problems with Starbucks, suffice it to say that it is now a mature business and it is performing accordingly. In the morning session on Monday, 30 January 2017, the stock was down 1%, or $0.56 at $55.56 in premarket trading. The company is worth an estimated $81.68 billion, and it has beat forecasts in each of the previous 4 fiscal quarters between Q1 2016 and Q4 2016. On a scale of 1.0 (strong buy) to 5.0 (sell), Starbucks is rated at 1.8. The 1-year price target for the stock is $8 higher than its prevailing price at $64.35.
How should you trade Starbucks’ $4 fumble?
Over the past 1 year, Starbucks shares have plunged 8.73%. When the company missed its quarterly estimates last week, the share price dropped further. Yet analysts continue to defend Starbucks and its lackluster performance. Q1 2017 fiscal earnings produced EPS of $0.52, as expected. Revenues increased by 6.7% to $5.73 billion, even though estimates of $5.85 billion were forecast. Same-store sales are weak. On a global scale, Starbucks’ same-store sales increased by 3%, yet comps in North and South America were up just 3%. The strongest growth was seen in the Asia-Pacific region with increases of 5%. Analysts were expecting same-store sales in North America of 4% – 6%. Since mobile customers are prioritized in Starbucks stores, those standing in line are extremely agitated. In response to a shortage of baristas, Starbucks announced that it would be hiring 10,000 refugees – a bizarre strategy given that most refugees from war-torn countries have no command of the English language whatsoever, let alone the skills to operate the equipment in store.
Comments
Log in or sign up to join the conversation.