“Second to my family, this is the most important aspect of my life.”
– Howard Schultz (subscription required), Founder Starbucks
“This is his baby. If anyone’s going to figure out how to make this train get back on the rails, even in these tough economic times, it’s going to be Howard.”
– Sharon Zackfia (subscription required), Analyst, William Blair
Yesterday after the close, Starbucks (SBUX) announced that Founder Howard Schultz will be retaking the CEO role.
In conjunction, he announced a number of changes going forward including improving the US business by slowing the pace of new store openings and closing some underperforming stores and focusing on international including redeploying some capital that was planned for investment in the US overseas.
I think all of this is bullish for Starbucks’s business. Schultz obviously has the motivation and will do his best to right the ship. On top of that, he built this thing, he knows the business, he’s the best there is for the job. I also like the focus on existing US stores rather than growth and focusing overseas where their business has performed better of late.
But I still think this is only the beginning of any potential turnaround. Starbucks has already gone a long ways down the wrong path and it is going to take time to repair the business and their reputation.
In addition, they face a nasty macroeconomic headwind as Starbucks products are the epitome of discretionary and consumers will likely cut back in any slowdown or recession.
That’s why I think this represents a good opportunity for long term holders of the shares to exit at a better price. Then you can monitor the business for signs of progress, wait out the economic slowdown and, if you so choose, get back in a year or two down the road at what will likely be a better price and a better fundamental position for Starbucks’s business.
Disclosure: Top Gun holds no position in Starbucks (SBUX) shares