Starbucks July Ups and Downs
July’s been a wild ride for Starbucks (SBUX) as it announced cutbacks, premiered new health products and prepared its 3rd Quarter fiscal earnings report to be released later this week. Here’s a quick recap.
On July 1st, Starbucks announced plans to close 600 underperforming stores in the USA by year’s end. That equates to about 5% of all US Starbucks stores currently open. The shutdowns are expected to affect approximately 12,000 employees. Most news reports suggest the reason for the mass closing is due to the US lagging economy but there are also suggestions that the huge coffee chain might have simply expanded too quickly.
On July 8th, Starbucks offers a new healthy product to its consumers — Vivanno nourishing fruit smoothie blends. Plus plans for more new health and energy products on the way.
On July 13th, Starbucks stayed true to its promise and announced the locations of the first 50 stores to be closed. Some may have expected the first stores to be located in major cities where Starbucks is so ubiquitous that one may actually pass as many as 3 Starbucks stores in two block radius. In my hometown of San Francisco, one could find over 70 Starbucks within a 1 mile radius of any point in downtown S.F. But it turns out none of the first 50 stores Starbucks plans to close will be located in a major city.
On July 28th, analysts from Thompson Financial expect the soon to be released 3rd Quarter fiscal earnings to deliver profits of 18 cents per share which is slightly down from the same period last year.
Today, July 29th, Starbucks announced it will close 61 of its 84 stores in Australia — showing for the first time a reduction in expansion to its international business. Plus it also announced cuts to 1,000 non-store jobs again as part of its plans to overhaul its business to cut costs and increase profits.
Yet amid all this news, Starbucks stock (SBUX) rose 5.34% to close at $14.99 this afternoon. So why a surge in price for Starbucks? Well all these changes might just be the move Starbucks needs to make. Maybe — just maybe — a Starbucks on every corner is a little too much and adding new product lines to existing stores might just be the ticket to inject added sales. Those may all be good reasons, but I can’t help but think that Starbucks is primed for a buy at its current low share price. Over the past 52 weeks, Starbucks stocks plunged nearly 50% in price. In the month of July it maintained a price within the $14-$15 range. Has this stock hit bottom? Maybe not. Maybe it will drop to $12 after the lower than expected 3rd Quarter profits are annouced after the closing bell on Wednesday. My reaction, however, is to buy now and keep a close eye on Starbucks balance sheets over the next few quarters. If revenues begin to rise due to its recent overhauls then the stock price will follow and there is a lot of room still left for Starbucks to grow especially internationally. Before years end Starbucks is expected to open over 900 stores overseas. And rather than expand its already ubiquitous stores in the US, Starbucks appears to be focusing on expanding its products and its service. For a stock that used to trade in the high $30 range (just barely hitting $40 a share), at less than $15 a share, SBUX should be considered a steal. Its most recent big news in July are signs the company is looking to make big changes and I think it will lead to an uptrend in the stock. I am looking for SBUX to increase its shares to be priced in the low $20 range by years end. Sure the stock may go through some bouts of ups and downs. But in the long run Starbucks looks ready to launch upward with new leadership and new product offers to its consumers.
That’s the Upside on Starbucks
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