Starbucks: A Turnaround in Progress – Key Takeaways
This article details the current state of Starbucks (SBUX) and its efforts to regain growth momentum under CEO Brian Niccol. Here’s a breakdown of the key points:
The Challenge:
* Past Innovation Struggles: Starbucks has a history of launching new drinks (Summer-Berry Refreshers, Lavender Oatmilk Matcha, Oleato) that generate initial buzz but fail to considerably impact growth.
* “Show Me” Story: Investors are skeptical and require concrete evidence of enhancement before increasing confidence in the stock. Shares are down 10% since the last earnings report.
* Near-Term Headwinds: Flat North American sales, rising coffee prices, and the cost of a turnaround plan (store closures, layoffs) are impacting profitability.
Niccol’s Strategy & the “Starting 5″ Process:
* Structured Innovation: Unlike previous launches, Niccol is implementing a new “Starting 5” state-gate process. This involves rigorous testing in just five stores before wider rollout, focusing on both customer demand and operational feasibility.
* Proven Method: This stage-gate approach is based on Niccol’s successful experience at Chipotle, where it led to hits like queso blanco and lifestyle bowls.
* Protein Beverages as a Test: The new protein beverage platform is the first major innovation under this new process.
* Turnaround Credibility: Success with the protein drinks could validate Niccol’s turnaround efforts and boost investor confidence.
Financials & Analyst Outlook:
* Cost Savings: The restructuring plan is expected to generate over $175 million in annual EBIT savings.
* Earnings Forecasts: Wells Fargo has trimmed its FY25 & FY26 EPS forecasts, acknowledging ongoing challenges.
* Price Target: Wells Fargo maintains a ”buy” rating with a $105 price target.
* Long-Term View: Analysts believe the turnaround is still in its early stages and execution risk remains high.
The Protein Beverage Opportunity:
* Consumer Trend: 70% of Americans are actively trying to increase their protein intake, indicating strong potential demand.
* Broadened Customer Base: the protein platform could attract new customers focused on health and wellness.
* Potential Catalyst: A successful launch could be a significant step in restoring growth and investor confidence.
Overall Sentiment:
The article presents a cautiously optimistic view. While acknowledging the challenges, it highlights Niccol’s strategic approach and the potential of the protein beverage launch to be a turning point for Starbucks. The author (and Jim Cramer’s Charitable Trust) remain confident in Niccol’s leadership and maintain a “buy-equivalent” rating with a $100 price target.
