A few years ago when Covid first hit and we were all going to die in the streets they shut down all the colleges and workplaces. The upshot of this was that I found myself living with three people in their early 20s who moved back home.
Now some of it was good. The nightly badminton games and the cooking competitions for instance balanced out the sophomoric philosophy lectures and cleanliness issues.
At one point my daughter started asking people what they wanted from Starbucks (SBUX) every morning. She would get our orders and return with lattes and what have you.
I thought to myself that a remote job at a first-rate consulting firm must be paying off. It was only after a few weeks that I realized that my beautiful wife had given her our debit card and it was me paying $28.97 every morning!
After blowing my top yelling at all and sundry, I sat down and calmly explained why this behavior was wrong. You see, $28.97 x 30 (days in a month) equals $869.10. The average return on the S&P 500 over the past 20 years is 10.20%.
If you put that money into the S&P 500 you will have $1 million in 24 years and $2 million in 30 years. My oldest would be a millionaire by the time she was 48. Or in this case, I could have stacked another million by the time I’m 79.
Here is a handy chart using the calculations noted above.
The reason I bring this all up is that my children must have been talking to people and spreading the word.
Yesterday Starbucks (SBUX) shares crashed 16% wiping out $15 billion in market value after they announced that coffee drinkers have had enough of their expensive fare.
That’s right, In the first quarter, Starbucks’ sales fell for the first time since 2020.
Chief executive Laxman Narasimhan said customers had been “more exacting” in how they spend their money. To paraphrase a quote from the movie Spinal Tap, it’s not that they are losing customers it’s just that the customers are being more selective.
SBUX Falls
Total revenues for SBUX dropped 2% to $8.56 billion in Q1 which was much lower than the $9.13 billion that the Street was looking for. Starbucks’s share price is down 35% for the year.
Reasons for the bad quarter can be attributed to Starbucks’ Middle Eastern franchise which got caught up in an anti-Isreali boycott. SBUX is laying off 4% of its workforce in the region.
But it’s not just the Middle East. Sales fell 3% in the U.S. and 11% in China.
And it’s going to get worse. An unusually dry growing season in Vietnam and an unusually wet one in Brazil have dropped the coffee crop yield by 20 to 30% leading to shortages. Coffee bean prices are up 50% since October 2023.
Sell Starbucks (SBUX). This share price is heading toward the $50s.
All the best,
Christian DeHaemer
P.S. Here are some articles I am reading:
Big changes in electricity stocks
https://www.outsiderclub.com/buy-electricity-stocks-now/
Consumer pulls back
https://www.cnbc.com/2024/05/01/starbucks-mcdonalds-yum-earnings-show-consumers-pulling-back.html
