Howard Schultz is stepping down as executive chairman of Starbucks Corporation (NASDAQ:SBUX) and the stock is taking a hit.
The news, released right after the market closed June 4, sent shares down $1.15 in the after-market. They rebounded afterward, but finished down 2.44% at $55.68 on Tuesday.
This is the second time Schultz has left the company. He also left in 2000, returning in 2008 after the stock fell hard, an unexpected casualty of the financial meltdown. Since his return the stock has risen by over 1,000%, while delivering a steady stream of dividends that now total $1.20 per year.
This time, Schultz is leaving while predicting an imminent fall in stock market returns, amid speculation he might run for President of the United States in 2020.
Is Starbucks a Mess?
Some say Schultz is leaving now so he won’t be responsible for the mess his recent actions have made at the company.
Same store sales are peaking, the U.S. market looks saturated and the reputation of the company has fallen in the wake of a scandal involving charges a manager was racist for having two black Philadelphia men arrested when one asked to use the bathroom.
Most of that reputation hit appears short-lived. The “intent to purchase” has fallen just slightly, its reputation as a place to work is already recovering, and so is the “buzz” around the company.
The bigger problem is that Starbucks is selling more sugar than coffee, and Schultz has been unable to deliver much growth beyond coffee. That’s what new CEO Kevin Johnson, a former Microsoft Corp. (NASDAQ:MSFT) executive, will be working on.
Getting past breakfast is an area where Schultz clearly failed. His efforts to sell tea, buying Teavana in 2012, proved a failure, with all Teavana stores closing five years later. An effort to extend the chain’s hours by selling wine also failed, and so did its $100 million purchase of La Boulange bakery.
On the other hand, Starbucks continues to grow like gangbusters in China, with plans to own 5,000 stores there in 2021, against over 8,000 company-owned units in the U.S. and 5,700 more run under license.
A global alliance with Nestle, signed just last month, should also be factored into the company’s growth story. Starbucks got $7.15 billion in the deal and retains “a significant stake as licensor and supplier.”
Since 2008, Schultz has clearly made Starbucks a value play. In Schultz’ first term in charge, shareholders benefited mainly from stock splits. Now they get regular dividends. Buying now, with the expectation that dividend will increase, means you’re expecting the effective yield of 2.1% to rise over time, and that’s how to play the shares — as a long-term holding delivering both income and growth.
Schultz for President?
Schultz has made Starbucks a global brand and this creates the biggest contrast with Republicans for 2020. He has spoken out against the Trump Administration’s trade policies, as well as its social policies, but also positioned himself to the right of Democrats on budget issues, steering a centrist course on issues that might make him appealing in both parties, especially if the economy falters over the next two years.
The question is whether old-fashioned American centrism sells as well as Starbucks coffee does. Most political observers doubt that, but having an unabashed centrist in the race might help turn down the country’s political temperature, like ice in a Frappuccino.
Regardless of whether Howard Schultz becomes President, such an outcome would be refreshing.
Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.
