Why Starbucks Stock Is Being Pounded After Revealing 150 Store Closures

Coffee giant Starbucks came out with a shocking report card on its self after the closing bell on Tuesday. Here is some instant analysis from TheStreet.
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Starbucks (SBUX) - Get Report should expect a ton of investor calls off the news it just released on Tuesday evening. 

The coffee giant shocked Wall Street in several ways, all of which call into question the fundamental health of the company. Just days after Howard Schultz announced he will step out of the company (perhaps to run for President) later this month and into a chairman emeritus position, the news also calls into question the direction of Starbucks moving forward.

On a positive note, Starbucks did announce a 20% increase in its quarterly dividend. But, the market's focus will likely stay on the company's fundamentals.  

Key Notes for Investors

  • Starbucks says global same-store sales may rise 1% in the most recent quarter. In the preceding quarter, same-store sales rose 2%. Sales may have been hampered by the incident in May that took place at a Starbucks in Philadelphia.  
  • The company will also move quicker to shutter under-performing stores. Said Starbucks, "Starbucks is optimizing its U.S. store portfolio at a more rapid pace in FY19, including shifting new company-operated store growth to underpenetrated markets, slowing licensed store growth, and increasing the closure of underperforming company-operated stores in its most densely penetrated markets to approximately 150 in FY19 from a historical average of up to 50 annually."
  • The company signaled it continues to battle cost increases, likely for wages, training and tech investments. Said CEO Kevin Johnson, "While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable. We must move faster to address the more rapidly changing preferences and needs of our customers. Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers which serve as the foundation to re-accelerate growth and create long-term shareholder value."
  • Starbucks is seeking to license company-operated stores in certain markets likely as a means to lower costs. 

Said TheStreet's founder Jim Cramer on Twitter following the results, "I think $SBUX deserves to sell lower than this with 1% comp gains..."

Shares of Starbucks traded down about 5% in pre-market trading on Wednesday.

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