Monday, November 10, 2008

A bitter cup

As much as I like my cinnamon dulce lattes, it's not hard to see how Starbucks came up with such absolutely abysmal Q4 earnings of $0.01 versus expectations for $0.13. Sure, $0.09 of it was due to restructuring costs, but $0.10 is still a big miss. While management has made some of the hard choices needed (closing 600 underperforming stores, cutting the bloated headquarters staff), I can't help but think that they're still looking at the world through rose colored glasses.

For Howard Schultz to say that Starbucks thinks they're better positioned than other luxury retailers because those luxury retailers (I think he's talking about Saks and Nordstrom) had double digit negative comps while Starbucks Q4 comp was only down 8% in the U.S. Congratulations boys. It certainly couldn't have been because your foo-foo coffee costs $4 versus a $500 dress, could it?

True, cutting those extra stores should help the comps for the remaining stores. And it's also true that making most of the future international stores licensed stores (a.k.a. franchised) uses someone else's capital to grow their business. I'm still stumped at how they can come up with value offerings, sell $100 of gift cards at Costco for $79.99, expect lower comps, and still come up with margin expansion for next year.

I truly wish them the best, but I'm just not sure that the markets are going to buy this cup of coffee until after a quarter or two of taste tests. While I wait, I'll be humming the theme from "Here Come the Brides" (yes, I'm that old)... 'the bluest skies you've ever seen are in Seattle...'

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