Starbucks stock downgraded by Citi as Howard Schultz begins as CEO
Yahoo Finance Live’s Emily McCormick and Brian Sozzi discuss Starbucks stock after Citi downgraded shares of the coffee chain amid Howard Schultz’s return as CEO.
Video Transcript
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EMILY MCCORMICK: The tough start for Starbucks' interim CEO Howard Schultz continues. Starbucks' stock was just downgraded to neutral from buy at Citigroup. Analyst Jon Tower also lowered the firm's price target to $91 a share from $120. Now, Brian, I'm heading right over to you on this one. There have been a lot of challenges at this company in recent months. Just back in February, Starbucks already said that it was seeing more costs due to training expenses, isolation pay for workers. They've been dealing with a union battle. What are your thoughts on this downgrade?
BRIAN SOZZI: Listen, this is not-- I don't think this is the start that big Howard Schultz wanted to see. He started on my birthday, on April 4th, as the new CEO, or interim CEO over at Starbucks. So far in April, Starbucks shares are down 11.3%. And I hear what Jon Tower over at Citi is saying. He's a longtime restaurant analyst. Used to be at Wells Fargo. One of the most incredible restaurant analysts on the Street. So when he downgrades shares of Starbucks, despite the weakness we have seen in April, you have to take it seriously.
Now Schultz, this week he's been getting negative headlines, the New York Post reporting that he told a Starbucks worker at a town hall that was pushing for a union effort, quote, "if you hate Starbucks so much, why don't you go somewhere else." So all in all, not a good start for Howard here. Likely when the company reports earnings in a few weeks, it's going to be a challenging quarter because a lot of the risks that Jon highlighted in his know, chief among them inflation. But again, you know, Howard Schultz just has to start work just showing that he's not some form of tone-deaf fat cat executive here, and try and connect better with these employees. And Wall Street, too, for that matter.
EMILY MCCORMICK: And of course, all of this has translated into a lot of pressure on Starbucks shares themselves. If we take a look at where that stock has been trading for the year to date, down about 31%. That compares to about 6.8% decline in the S&P 500. So certainly some underperformance there. And of course, even in the past month alone, we have seen Starbucks down about 3%, compared to a 5.7% increase in the S&P 500. So the pressure continues really over the past several months now, whether you're looking at the year to date or the past month alone.
And of course, just highlighting a couple of other pressures here for Starbucks, you have, of course, the fact that China, some key cities, including Shanghai, going into lockdown, and renewed restrictions taking place because of that COVID outbreak. Of course, that is an important geographic region for the company. And if we look at where those comparable sales had been in the prior quarter, China comp sales down 14% compared to estimates of 9.3%. So we'll see where this trends in the latest quarterly results coming out in the next several weeks, but again, a tough couple of weeks here at the beginning for Howard Schultz, Brian.
BRIAN SOZZI: And Emily, there's only so much we could charge-- they could charge to offset this inflation. Our producer, Val, I think she gets an $8 coffee with Oatly in it. I-- this is an expensive coffee. At what point do you push back and just make your own stuff at home?
EMILY MCCORMICK: It's a good question, and I think something a lot of these restaurant companies, including Starbucks, are having to ask themselves. So we'll see what shapes up next year for that company. But we want to get one final check of the market before we turn it over to our next hour of programming. Let's take a look at the three major stock indices, trading solidly in the green even after this morning's hotter than expected consumer price index, showing an 8.5% increase in that headline number on inflation.
