Activist Elliott Takes Big Stake in Starbucks – CEO Stays After Elliott’s Settlement
Starbucks is under pressure from activist investor Elliott Investment Management, which took an undisclosed stake in the company. Following the news, Starbucks’ stock rose nearly 7%, despite having fallen over 21% in the past year. Shares opened lower on Monday, dropping about 3%.
Starbucks CEO Retains Job After Elliott’s Settlement Offer
Starbucks has accepted a settlement offer from Elliott Management, allowing CEO Laxman Narasimhan to remain in his role. Elliott, holding a significant stake, seeks to enhance the company’s performance following recent setbacks. Former CEO Howard Schultz opposes the settlement, citing concerns over current management’s direction.
Key Concerns and Analyst Insights
1. Elliott’s Stake in Starbucks
- Elliott’s Stake: Citi analyst Jon Tower mentioned that Elliott’s investment “should come as little surprise to investors.”
- Impact on Shares: Starbucks’ shares dropped by 14% after Q2 earnings, the first quarterly sales decline since 2020.
2. Investor Concerns
- Declining Foot Traffic: Worries about reduced customer visits in the US.
- Innovation Competition: Concerns over competing effectively on new product development.
- Operational Improvements: Challenges in enhancing operational efficiency.
- Boosting Sales in China: The need for strategies to increase sales in the Chinese market.
3. Analyst Insights
- Citi Analyst’s View: Tower emphasized that resolving these issues will require tough decisions, but Elliott’s involvement might provide short-term support for the stock.
- Bernstein Analyst’s Perspective: Danilo Gargiulo suggested that Elliott’s participation could speed up decisive actions, creating intriguing prospects for long-term investors.
Sales Drop and Strategic Shift in USA & China
Boosting Starbucks’ US Traffic:
Starbucks reported a surprising 7% drop in US foot traffic last quarter. To boost stock value, increasing US customer visits is crucial. New menu items like boba pearls and energy drinks target Gen Z. However, value deals could harm Starbucks’ premium brand image.
Starbucks’ in China
Starbucks, with China as its second-largest market, is experiencing significant challenges. Same-store sales have declined by 11%, foot traffic is down 8%, and the average ticket size has decreased by 4%.
CEO Laxman Narasimhan attributes these declines to changing customer behaviors and a highly promotional market. Expert Gargiulo suggests franchising as a growth strategy, enabling Starbucks to expand with less capital investment and reduced exposure to economic fluctuations.
Starbucks’ Strategy: Boosting Efficiency and Rebuilding Brand Image
For Starbucks, bettering in-store operations is essential. Aimed at accelerating orders, the Siren system is now being used in more than 1,000 US outlets. COO Michael Gargiulo underlines the need for improved back-end operations and a quicker implementation.
Starbucks struggles with image as well. The social media boycott last fall harmed the brand even with the best attempts to minimize the impact. Right now, improving the brand image and rebuilding confidence are important concerns.
Starbucks Stock Information
According to Starbucks Corporation (SBUX)
- Ticker: SBUX
- Exchange: NasdaqGS
- Price at close (4:00 PM EDT): $76.55
- Change: -$2.72 (-3.43%)
- Pre-market price (6:47 AM EDT): $76.76
- Change in pre-market: +$0.21 (0.27%)
According to Restaurant Brands International Inc. (QSR)
- Ticker: QSR
- Exchange: NYSE (New York Stock Exchange)
- Price at close (4:00 PM EDT): $72.69
- Change: -$0.05 (-0.07%)
- Pre-market price (6:30 AM EDT): $72.78
- Change in pre-market: +$0.09 (+0.12%)
According to Dutch Bros Inc. (BROS)
- Ticker: BROS
- Exchange: NYSE – Nasdaq Real-Time Price
- Price at Close ( 4:00 PM EDT): $39.54
- Change: +0.37(+0.94%)
- Pre-Market (7:00 AM EDT): $39.45
- Change in pre-market: -0.09(-0.23%)
Starbucks faces declining sales and foot traffic in the US and China. Elliott Investment Management’s investment might help the stock in the short term, but Starbucks needs to address operational issues and improve its brand to boost long-term performance.
