Shares of Starbucks (SBUX) are down more than -3% in pre-market trading, as the coffee giant gave a lackluster update on the company's progress last night. “Our growth has slowed a bit,” Starbucks CEO Kevin Johnson said in an interview. “I expect better, I think our shareholders deserve better, and we're committed to address that.”
None of this comes as a surprise to Hedgeye Restaurants analyst Howard Penney, who has maintained a short call on Starbucks for some time now.
"We see Starbucks as a company that is still in need of a reset (in spending and thinking), much like their 2008 turnaround," Penney wrote recently. "However, hanging their hat on waste management initiatives, labor savings, and the China business, will not get this done."
Penney has been The Bull on Starbucks over the years. But the veteran analyst says the coffee juggernaut has mistakenly moved away from what it does best. He has been recommending investors short the stock and says, “recovery is still a long way off, traffic is declining globally for the brand.”
For starters, Penney maintains that Starbucks is putting too much emphasis on food and complicating its menu. This has put the company in a bad position.
“Complexity kills growth and it’s a theme that I think about for every restaurant company that I like,” Penney explains in the clip below. “As Starbucks has raised the number of items on their menu, sales have slowed. That’s a problem.”
He points specifically to the rise in Starbucks’ breakfast food items and cold coffee items as negatives for the stock.
(The video below was released on May 15, 2018)
Also below is Penney's analysis tweeted in real time last night as the bad news on Starbucks came rolling-in.