Hi all,
It’s been awhile and thanks for always visiting our site and our X (aka Twitter) account.
As you have seen from our recent post, we made a bet that $SBUX is heading down to $72 and oh boy, were we right or what? Why did we make this bet?
- Too many promotions: on-going BOGO or 50% indicating that they are struggling and willing to bring back customers at a lower margin.
- Not enough traffic at 6 stores we visited confirming our hypothesis (1).
- Playbook
- Typical growth comes in 3 pillars: geographic expansion, new customers (or segments) and new product
- They expanded as much as they could and now in order to maintain growth, they are opening suboptimal locations that’s not as profitable.
- They might have gotten non-coffee drinkers with their refreshers and interesting drinks but due to their woke stance, they have alienated Red customers especially when there are more competitions like Dutch Brothers ($BROS)
- Lack of new products outside of coffee/drink area. Nothing new has been added
- Bad press (anti-union, firing employees, supporting woke agenda)
- Some customers we have spoken said they are now making coffee due to inflation eating into their wallet similar to what was recently reported.
Hence, what did we think their numbers were going to be? Significantly lower and we were correct.
Are we done here now that we almost reached our PT of $72? I don’t think so. Why? We think several things have to happen before the price will rise again.
- They are going to announce that they will go through cost-cutting transformation that will result in
- Simplification of menu (food and drinks)
- Product expansion outside of food and drinks
- Closure of poor-performing stores
- Layoffs
- Leadership change and/or PE pushing to change the board
- Interest rate needs to come down as well as inflation
Until this is done, we think the price will continue down to $63.
As always, do your DD (deep dive) before making any investment decisions.
Happy investing and trading!