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Starbucks (SBUX) Short Thesis:
- Is the CEO ready for the Big Show? Time will tell if Laxman Narasimhan is the right choice as CEO of SBUX. If we use the performance of (RKT.LN) while CEO as a proxy, the jury is still out. Laxman was appointed CEO of RKT.LN on September 1, 2019, the stock has underperformed the FTSE since then. The reason SBUX hiring him - "His understanding of our culture and values, coupled with his expertise as a brand builder, innovation champion, and operational leader, will be true differentiators as we position Starbucks for the next 50 years, generating value for all our stakeholders." Working in the shadows of Howard Schultz can't be easy. What about executing “flawlessly” on Howard’s plan to fix the company?
- Accelerating estimates into a recession: Accelerating guidance into a recession - the company now sees annual growth in adjusted EPS of 15-20% for FY23-25, and annual global comparable sales growth of 7-9% over that time, leading to global revenue growth of 10-12%. In the USA they raised its forecast: The company now expects annual U.S. comp sales of 7-9% from 2023-2025, up from a previous forecast for 4-5%. China comp sales, meanwhile, should grow 4-6% annually over that time frame, with net stores growing 13%. The company expects "progressive" expansion in operating margin in the long term, with growth each year. FY23 will likely prove more challenging than the company is guiding.
- Changes are likely to take time to positively impact financials: So many changes - a new CEO and other significant management changes; modernizing equipment in its coffee shops to improve efficiency; a new brewing system that can prepare a single cup of coffee in 30 seconds; it is adding a new Siren System for the preparation of cold beverages; expand its loyalty program to the metaverse, or web3. Starbucks also announced more changes to its labor model. The company is also focusing more intently on store managers, adding leadership training and tools to help with scheduling and decision-making. All are apparently much needed to changes like these don’t happen overnight.
