STARBUCKS’ NEW CEO TELLS INVESTORS HE PLANS TO FOLLOW THE SCHULTZ ROADMAP - Kanebridge News
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STARBUCKS’ NEW CEO TELLS INVESTORS HE PLANS TO FOLLOW THE SCHULTZ ROADMAP

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By Sabrina Escobar
Fri, Nov 3, 2023 2:22pmGrey Clock 4 min

Investors got a long-awaited glimpse of Starbucks’ future under CEO Laxman Narasimhan Thursday, when the company unveiled an updated strategic plan.

The so-called “Triple-Shot Reinvention Strategy,” which the company announced at an investor event in New York, comes nearly eight months after Narasimhan took the company’s reins from former CEO Howard Schultz.

The event was the first time many investors heard from Narasimhan about his long-term vision for the company. Those who feared a drastic about-face now that Schultz has stepped away can rest easy: Narasimhan describes his new plan as relying “on the foundation” of the reinvention plan laid out by Schultz in September 2022.

“This huge focus on my part, on my team’s part, over the last year to build the foundations—that is continuing,” Narasimhan said in an interview with Barron’s. “All we’ve done here is to say ‘Hey, there’s further stuff [to do] about the store, there are things to do in innovation that we can bring in.’”

Triple-Shot will focus on three areas intended to propel the next stage of the company: improving the store experience, scaling its digital capabilities, and expanding its global footprint. The plan also seeks to increase efficiency and reinvest in its employees.

The company believes the strategy paves the way for long-term revenue growth of 10% or greater, and earnings per share growth of 15% or greater. Long-term guidance issued in 2022 called for revenue to grow between 10% to 12% annually through 2025, and earnings per share to increase between 15% and 20% in that time. Same-store sales will grow by at least 5%, Starbucks said Thursday. Last year, the company forecast they would grow between 7% and 9% annually.

Starbucks also announced a $3 billion cost savings plan, set to be implemented over the next three years.

The company’s store expansion plan is largely unchanged. Starbucks is reiterating its aim to operate 55,000 stores by 2030, an increase of 45% from its current tally of about 38,000. Most of these new store openings will be outside North America, Starbucks added.

Starbucks rewards members are expected to double from the current 79 million within the next five years.

Here are more takeaways from Thursday’s event.

Narasimhan Sees Better, More Efficient Stores.

The pandemic was hard on Starbucks stores, Narasimhan told Barron’s. The early stages of the lockdown snarled supply chains and closed off cafes. Many locations pivoted to drive-through and mobile-order only formats—and in the process, trained customers to drink their coffee on the go, analysts say.

Although grab-and-go is typically a more profitable business model than the company’s traditional sit-down cafe model, it comes with a new set of challenges. Perhaps the biggest is the impact on baristas. Some baristas told Barron’s that their jobs have gotten more stressful with the rise of mobile ordering and delivery, as they now have to juggle an onslaught of orders that, in some cafes, have turned every hour into rush hour.

“A lot of things didn’t go the way that they normally do for a company that was focused on human connection,” Narasimhan said.

Triple-Shot aims to streamline baristas’ work every step of the way—from overhauling back-end procedures, such as recording inventory, to improving daily minutiae, like the way customers pick up their orders. Part of this effort includes opening stores with new layouts, like drive-through only or delivery only, to better serve the needs of the local market. Starbucks is planning on increasing the number of take-out only or delivery-only stores, both of which comprise 1% or less of the current store portfolio. By 2025, Starbucks aims to redirect 40% of delivery orders to delivery-only stores.

Through its investment in efficiencies, the company says it can cut more than $3 billion in costs over the next three years up and down the supply chain. It plans to reinvest those funds in the business and to deliver shareholder returns.

Investments in Employees Will Continue

Starbucks announced plans to invest $1 billion in employee initiatives, including installing new technology in stores, raising wages, boosting benefits, and improving scheduling. Since 2020, hourly total cash compensation has increased by nearly 50%. By 2025, the company plans to double hourly incomes compared with 2020 through more hours and higher wages.

This is the second round of workforce investment Starbucks has rolled out since it started dealing with a rise in unionisation activity two years ago. The first billion-dollar round was announced in May 2022, and was funneled into pay raises, additional training, and better technology in stores.

Some union members and politicians have criticised the way Schultz and the company handled the company’s early stages of unionisation. They point to dozens of complaints the National Labor Relations Board has filed against the company, and Schultz’s public comments that unions were contrary to his vision for Starbucks. A month after Narasimhan took control of the company, a group of more than 40 of the union’s allies sent him a letter, urging him to “create and build a healthy working relationship with unionised partners.”

Close to half a year later, Narasimhan’s stance on unionisation is still a bit of a mystery, investors say. When Barron’s asked him how the employee investments factored into his and the company’s perspective on unionisation, he said he would only talk about the partner investments. The company has long emphasised the investments made in its workforce when asked about unionisation efforts.

“We have a holistic view of the kind of bridge that we provide our partners to a better future and it is grounded in the idea of a strong operating culture,” he told Barron’s. “It is grounded in the idea of human connection. If you look even at our mission, every word in that mission is about giving the barista agency.”

Global Expansion and China

China has become Starbucks’ second largest market after the U.S. On Thursday, the company reaffirmed its commitment to growing in the country despite rising operational challenges.

“I’m really bullish on China, in the long run,” Narasimhan said in an interview.

He added that the company was also planning on expanding even further in other international markets. Three out of four new stores over the near term will be opened in markets outside the U.S., including in Southeast Asia and Latin America.By 2030, the company plans to have 35,000 stores outside of North America. As of Oct. 1, it had a little over 21,000 international stores.

Starbucks stock closed 9.5% higher Thursday, buoyed by a stronger-than-expected fiscal fourth quarter. Shares were largely unchanged in after-hours trading, up 0.2%.



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These stocks are getting hit for a reason. Instead, focus on stocks that show ‘relative strength.’ Here’s how.

By KEN SHREVE
Wed, Jun 12, 2024 4 min

A lot of investors get stock-picking wrong before they even get started: Instead of targeting the top-performing stocks in the market, they focus on the laggards—widely known companies that look as if they are on sale after a period of stock-price weakness.

But these weak performers usually are going down for good reasons, such as for deteriorating sales and earnings, market-share losses or mutual-fund managers who are unwinding positions.

Decades of Investor’s Business Daily research shows these aren’t the stocks that tend to become stock-market leaders. The stocks that reward investors with handsome gains for months or years are more often  already  the strongest price performers, usually because of outstanding earnings and sales growth and increasing fund ownership.

Of course, many investors already chase performance and pour money into winning stocks. So how can a discerning investor find the winning stocks that have more room to run?

Enter “relative strength”—the notion that strength begets more strength. Relative strength measures stocks’ recent performance relative to the overall market. Investing in stocks with high relative strength means going with the winners, rather than picking stocks in hopes of a rebound. Why bet on a last-place team when you can wager on the leader?

One of the easiest ways to identify the strongest price performers is with IBD’s Relative Strength Rating. Ranked on a scale of 1-99, a stock with an RS rating of 99 has outperformed 99% of all stocks based on 12-month price performance.

How to use the metric

To capitalise on relative strength, an investor’s search should be focused on stocks with RS ratings of at least 80.

But beware: While the goal is to buy stocks that are performing better than the overall market, stocks with the highest RS ratings aren’t  always  the best to buy. No doubt, some stocks extend rallies for years. But others will be too far into their price run-up and ready to start a longer-term price decline.

Thus, there is a limit to chasing performance. To avoid this pitfall, investors should focus on stocks that have strong relative strength but have seen a moderate price decline and are just coming out of weeks or months of trading within a limited range. This range will vary by stock, but IBD research shows that most good trading patterns can show declines of up to one-third.

Here, a relative strength line on a chart may be helpful for confirming an RS rating’s buy signal. Offered on some stock-charting tools, including IBD’s, the line is a way to visualise relative strength by comparing a stock’s price performance relative to the movement of the S&P 500 or other benchmark.

When the line is sloping upward, it means the stock is outperforming the benchmark. When it is sloping downward, the stock is lagging behind the benchmark. One reason the RS line is helpful is that the line can rise even when a stock price is falling, meaning its value is falling at a slower pace than the benchmark.

A case study

The value of relative strength could be seen in Google parent Alphabet in January 2020, when its RS rating was 89 before it started a 10-month run when the stock rose 64%. Meta Platforms ’ RS rating was 96 before the Facebook parent hit new highs in March 2023 and ran up 65% in four months. Abercrombie & Fitch , one of 2023’s best-performing stocks, had a 94 rating before it soared 342% in nine months starting in June 2023.

Those stocks weren’t flukes. In a study of the biggest stock-market winners from the early 1950s through 2008, the average RS rating of the best performers before they began their major price runs was 87.

To see relative strength in action, consider Nvidia . The chip stock was an established leader, having shot up 365% from its October 2022 low to its high of $504.48 in late August 2023.

But then it spent the next four months rangebound—giving up some ground, then gaining some back. Through this period, shares held between $392.30 and the August peak, declining no more than 22% from top to bottom.

On Jan. 8, Nvidia broke out of its trading range to new highs. The previous session, Nvidia’s RS rating was 97. And that week, the stock’s relative strength line hit new highs. The catalyst: Investors cheered the company’s update on its latest advancements in artificial intelligence.

Nvidia then rose 16% on Feb. 22 after the company said earnings for the January-ended quarter soared 486% year over year to $5.16 a share. Revenue more than tripled to $22.1 billion. It also significantly raised its earnings and revenue guidance for the quarter that was to end in April. In all, Nvidia climbed 89% from Jan. 5 to its March 7 close.

And the stock has continued to run up, surging past $1,000 a share in late May after the company exceeded that guidance for the April-ended quarter and delivered record revenue of $26 billion and record net profit of $14.88 billion.

Ken Shreve  is a senior markets writer at Investor’s Business Daily. Follow him on X  @IBD_KShreve  for more stock-market analysis and insights, or contact him at  ken.shreve@investors.com .