SBUX Preview: Any Turnaround Strategy?

Starbucks (SBUX - commentary - Cramer's Take) is scheduled to report its fourth-quarter and full-year 2008 results after the market closes on Monday.

The ubiquitous coffee chain is expected to earn 13 cents per share for the fourth quarter and 74 cents per share for the full year. Revenue of $2.58 billion is expected for the quarter and $10.44 billion in sales is expected for the full year. In the year-ago quarter, the company earned 21 cents per share on revenue of $2.44 billion.

The once-fast-growing Starbucks, which was able to weather prior recessions, finally has to face the bitter reality of an economic decline. The once-inelastic demand for the company's $5 cups of coffee has become increasingly elastic due to economic conditions. Furthermore, competitive challenges from lower-cost brands such as Dunkin' Donuts and McDonald's (MCD - commentary - Cramer's Take) have sparked a substitution effect amongst consumer who now chose to trade down.

While Starbucks continues to grow outside the U.S., particularly in China, the oversaturation at home needs to be reduced. Just the other day, I took a walk with my wife and son along Broadway just north of Times Square. There were three units in a few blocks along Broadway and at least one just off Broadway. Starbucks is also in the habit of leasing expensive prime real estate.

Last week, Hewlett-Packard (HPQ - commentary - Cramer's Take) hired away the Starbucks CFO. This is not an opportune time for Starbucks to lose its CFO, unless perhaps he was part of the problem and not the solution. Indeed, Starbucks needs a solution because the company needs to fix itself up real quickly or else face a more dramatic decline as the economic slowdown continues.

I believe that, with a good strategic plan, Starbucks can turn itself around. Now management needs to convince me that it has such a plan.

Know What You Own: Related stocks of interest to investors would Tim Horton's (THI - commentary - Cramer's Take), Panera Bread (PNRA - commentary - Cramer's Take), McDonald's (MCD - commentary - Cramer's Take), Yum Brands (YUM - commentary - Cramer's Take), Darden (DRI - commentary - Cramer's Take), Brinker (EAT - commentary - Cramer's Take).

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At the time of publication, Rothbort was long McDonald's, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.