Well, there’s two guys you won’t see lining up at Starbucks (SBUX) anytime soon.
TheStreet Pro contributors Stephen Guilfoyle and Doug Kass both trained their sights on the world’s largest coffee chain, and they had a latte to say about its latest earnings report.
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Guilfoyle, or Sarge as Wall Street knows him, said in his recent column that he didn’t get his daily dose of java from the Seattle chain’s outlets.
“I’ll be honest with you,” the veteran trader said. “I get a chuckle out of people who wait in line for Starbucks. Especially if there is a 7-Eleven or a Dunkin’ Donuts nearby.”
He added, however, that while he doesn’t drink Starbucks, that doesn’t mean he won’t buy the stock — as long as there’s good reason to do so. And frankly, he said, “there has not been a good reason for a very long time.”
Starbucks posted fiscal-third-quarter results on July 29, and Guilfoyle, whose career dates back to the floor of the New York Stock Exchange in the 1980s, dug into the numbers.
Starbucks CEO says turnaround plan is working
The coffee-brewing retailer reported its sixth straight quarter of lower same-store sales, but revenue was slightly better than expected as the company continued its “Back to Starbucks” turnaround program.
“It’s clear Back to Starbucks is the right plan,” Chief Executive Brian Niccol said during an earnings call with analysts. “It is grounded in feedback from our customers and partners and it’s rooted in what has always set us apart: a welcoming coffeehouse where people gather and where we serve the finest coffee handcrafted by our skilled baristas.”
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Chief Financial Officer Catherine Smith said that “the tariff environment and coffee prices continue to be dynamic.”
Guilfoyle noted that Starbucks hired Niccol because he had done such a good job at Chipotle (CMG) .
“Burritos for the masses might not seem like a logical stepping-stone toward high-end coffee, but that’s not it,” he said. “‘It’ is about running a food-services business at scale efficiently. Niccol can do that.”
Niccol had helped double Chipotle’s revenue while the stock price increased by almost a factor of eight.
Prior to Chipotle, Niccol had been CEO of the Taco Bell division of Yum Brands (YUM) and chief marketing officer for Yum’s Pizza Hut.
“This quarter, we’ve made meaningful progress and we are ahead of our expectations,” Niccol said during the earnings call. “We’re moving quickly to transform both the business and our culture.”
Niccol said Starbucks was looking for a partner to work with in China and had received significant interest from more than 20 interested parties.
The company faces a strong challenge there from the homegrown Luckin brand, (LK) which also recently expanded to New York City.
“We remain committed to our China business and want to retain a meaningful stake,” he said.
Guilfoyle noted that global comparable store sales decreased 2%, which was actually better than expected
“The top-line result just beat Wall Street’s expectations while sporting year-over-year growth of 3.8%,” he said. “However, the adjusted bottom-line print fell significantly short of what Wall Street was looking for.”
Veteran trader concerned about Starbucks stock
Starbucks shares are up 1% this year and up 18.3% from this time in 2024. Guilfoyle finds the company’s stock chart “troubling.”
Related: Starbucks Beats On Earnings, but Still Sees Sixth Straight Quarter of Sales Declines
He reviewed the simple moving average, which calculates the average price of a stock over a specific period and helps traders identify potential trends, support and resistance, and possible entry or exit points.
“Should the stock lose its 50-day [simple moving average], portfolio managers will be forced to reduce long-side exposure by their risk managers,” Guilfoyle said. “Should that line hold, that would mean that professional managers have more or less decided to defend that line.
“Therefore, as a word of caution to the readership, I would not initiate or add to any long-side positions in SBUX until we know if the 50-day SMA has been defended.”
Meanwhile Kass, a longtime hedge-fund manager and TheStreet Pro contributor, took time out to blast both Starbucks and Niccol’s former employer Chipotle, which recently missed quarterly revenue expectations.
“I am passing on both — I would not bottom-fish despite the material share-price weakness,” he said in a post on Doug’s Daily Diary.
“In summary, the two companies have morphed into overpriced purveyors of food/coffee — while the quality of their product offering has deteriorated and the selling cost of the product has risen.”
Kass even posted a photo of a Starbucks cheese danish selling for $3.25 and declared that “I couldn’t create a danish as unappealing.”
“I suspect the turnarounds for both companies will take much more time than expected,” he said.
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