Starbucks Shakeup

The Starbucks share price has had a tough time recently. It's trading at $84 a share now, down from around $115 at the start of the year. In the middle of March it reached a low of $78 a share, but then had a nice rebound on the news that Howard Schultz was returning as CEO.

The share price weakness can be attributed to a few things; supply chain issues, high inflation eating into profits and operating disruptions in China due to Covid lockdowns. China is their major growth market, so stores closures have a noticeable impact on profit growth. On Monday, Schultz announced the suspension of Starbucks' share buyback program, causing the stock to drop 7% over the last two days. The money that would have been used for share buybacks will now be used to invest in workers and stores.

The market doesn't like surprises and this announcement is a double whammy. Fewer buybacks means lower profits per share. Worse still, the share buyback money will be spent on things that increase expenses; higher expenses means profits reduce further!

I suspect Schultz's sudden return as CEO may be due to the growing unionisation movement inside the company. Starbucks is meant to be a company that champions its employees. If stores are voting to unionise it could be that employees no longer feel valued - to Schultz that would have been viewed as a failure of top management.

The changes at Starbucks probably won't be good for the share price in the short term. Schultz is looking long term though, setting up the company for sustained growth over the next decade.