I strongly that Starbucks stock will go further down, because of the
problems that it is facing and because of the measures that is going
to take, lay off thousands of people and close hundreds of stores all
over the nation and worldwide. This action will make investors think
that Starbucks is facing financial distress and it has to reduce its
costs as soon as possible. The stocks today closed at $12, and I
believe that this is just the beginning. The main causes that I will
consider as primarily important in effecting Starbucks are economic
situation of the nation, because of the oil prices going up. Consumers
tend to be elastic when it comes to Starbucks, because even if
Starbucks will not increase the prices of its products, consumers will
spend more of their income on gas, so they will have less income to
spend to Starbucks. The second cause is cannibalization; Starbucks
began opening stores at every corner of our neighborhoods, and stores
began to compete with each other, I mean the same organization's
stores. So operating costs have increased and fixed costs also. I will
consider the actual situation of Starbucks as a result of past work
managerial decision, but I will also consider the influence of the
actual economic situation of the country.

Armand Kapllani

600 stores is ONLY 90 days worth of opening them. While people keep
talking about them closing 600, they are opening new ones and hiring
new people. The time we spent today writing here, they opened 5-7
stores some where in the world. SBUX is getting smarter as where to
open stores, closing the bad ones is a GOOD THING in the long run. The
stock didn't close today at $12, what planet are you on? AS soon as
all the weak hands are shaken out by the shorts, and people quit
selling to the shorts SBUX will stop going down! LONGS hold the H-E
double hockey sticks on!

Who is willing to spend a couple of bucks for a cup of coffee...
seriously!

Who is willing?, how about thousands of people everyday including me.
You get what you pay for, want crappy "AMERICAN STYLE" coffee go
elsewhere!

Yes. The main thing is that people have been willing to do this since
Starbucks started in the 70's, and since it became a public company in
1989. That is a loooooooooooooooooooooooooooooong time.

To bet that suddenly people are going to stop doing something that
they have being doing since then is a huge risk and a losing bet.

-VV

keep shorting ....please.  Can't wait to see this under $10, and I
will buy as much as I can  and go long.  Starbucks is a great company
with strong fundamentals, closing 600 underperforming stores will only
increase their margin.  Come on, people that buy starbucks don't
switch to cheaper coffee because gas goes up a couple bucks.  The guy
at the top is just reiterating typical media sentiment.  Coffee is
like booze, when times are good people drink, when times are bad
people drink more...

The company's owned international stores are not profitable. The
licensed stores in general add peanuts to operating income. Crunch the
numbers. 600 stores closing, near-zero profit growth... where is the
upside?

mr. big mouth...how in the heck do you know or not that international
stores aren't profitable? Are you going around from country to country
counting the tills? Crunch the numbers??? how about you go crunch on
some dunkin fat nuts and drink some of their sweet "American style"
coffee while your at it too! Your always running your mouth, go beat
down some other company and quit wasting your time talking crap about
SBUX that you don't know!

1.  Starbucks finally realized that they couldn't impress Wall Street
with simply going out an opening a massive amount of new stores.  Ask
Walmart.  However, it's a great move for the company in the long term
to eliminate unprofitable location.  The only downsize to closing the
600 stores are: they will need to generate more revenue from the
remaining stores which means they will need to increase traffic by
offering more promotions to win over new customer.  Then you must ask,
will those promotion cause earning erosion or how will competition
respond.  Also, a question for the board, Have Wall Street adjusted
their earnings guidance based on the closure of the 600 stores or Have
Starbucks announce any earnings projections based on the former
statement?  In the long run if Starbucks can generate more revenue per
square footage with the remaining stores, I think they will be fine.
Most likely they will need an uptick in the economy.  It will be fun
to watch.

Enjoy Guys and Be easy on each others.  Everyones entitled to take
either side of the trade.  So congratulation to all the longs and to
all the shorts.

I know that the company stores are not making money internationally
because I have spent a week piled in financial statements for the
company. Its right in there, all you have to do is read and then
crunch the numbers.

david,

The thing to note is that Starbucks is not just closing stores and
trying to generate more revenue per store.

They are closing non profitable stores in the US and investing in new
stores abroad.

Starbucks is investing for the long term which is what I like to see
as an investor. Also, I think their expansion into alternative drinks
like smoothies is a great strategy.

P.S. I don't track earnings guidance or projections so I can't answer
that question.

-VV

When I looked at the most recent 10-k, dated November 29, 2007 for the
period ending Sept. 30 2007, the International Division showed
Operating Income of  82 million, 108 million and 138 million in 2005,
2006 and 2007 respectively.  You can see this information on pages 26
and 30 (numbers on the page, not the browser's page #).  Use the link
below to check for yourself.

http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=5308957&fo...

With this information I'd say that the international operations are
doing very well and currently comprise ~ 11% of the company's
Operating Income, up around 25% over the last fiscal year.

Starbucks has a fundamentally strong business.  True their margins
have been declining (slightly) due to the recent macroeconomic
trends.  The real story with Starbucks is that they were very over
ambitious with their growth plans.  Saturating the market with stores
and cannibilizing sales to hit growth targets for new stores opened is
not a wise use of investment capital.  If you look at their 2007
Annual Report, their international business had both higher margins
and higher growth rates.  These markets are a significant opputunity
for starbucks.  Licensing and franchising (allthough adding less to
the top line) are more profitable (higher margins) and provide higher
ROIC.  Starbucks' moves are exactly what they should be doing in order
to follow a value based management strategy.  It is time for them to
tighten the belt and these are the right moves.  If they didn't close
stores, they'd be managing ineffectively.  There actions hardly spell
the end of Starbucks.

Brian,

Sure the international division is doing well, but thats not what I
said. I said the company's owned international stores, as opposed to
the licensed stores, were not profitable. When you look at the
international segment on page 26, you have to first break up the
revenue streams into company owned and licensed stores, and then break
up the associating costs. Then you find the operating margin for owned
versus licensed stores. Its easy... it takes me back to managerial
accounting in university. What you'll find is that the companies have
not added anything, ever, to operating earnings.

Mr. Big
Sure breaking up revenue streams makes alot of sense if you want to
parcel out and examine a portion of the business.  But I wouldn't use
that method to evaluate the business as a whole, or even the
international market as a whole.  Overall, the international segment
has an 8% margin, if I'm reading the statement correctly.  Doesn't
matter if the licensing portion is pushing the numbers into
profitablity and they are using that to offset the greater expenses of
establishing the brand and more company stores overseas.  I see their
operating costs per store retreat as more stores open and get
established.  I'm betting that once SBux has established 5000
international stores, the margins will be more in line with domestic
margins.  That is the upside

"Sure breaking up revenue streams makes alot of sense if you want to
parcel out and examine a portion of the business.  But I wouldn't use
that method to evaluate the business as a whole, or even the
international market as a whole. "

This is true, and I wasn't implying anything about their business as a
whole - I was just showing that all of Starbucks' operations are not
sunshine and lollipops.

Profitability would pick up with more stores, this is true, but there
is no indication if and when they will resume company operated store
growth. In other words, it could be a very long time before that
upside occurs.

Thats a good point.  I think you're 100% right in saying that the
company owned stores are not profitable on their own.  As someone else
noted, the company owned stores help build the brand. Without the
company owned stores, and the brand they help build, the licensing
revenues, and associated operating income, would not exist.  So,
overall the international operations are doing well in my opinion.

It felt like you were implying that there was no upside to the
investment outside of North America.  I believe that there is
potentially a large upside.

If the company owned stores are not making money, why would you
believe the franchsed stores are?  This is where experience matters.
We have seen this before in Jiffy Lube, Boston Chicken, and Krispy
Kreme.  If the only way SBUX can make a profit overseas is by
"franchise royalties" and making the franchisees unprofitable, it will
be a matter of time until SBUX itself is unprofitable in the
international market itself.

If you somehow think they are operating SBUX owned stores at a loss
but somehow will operate at a profit in the future, that's worth
discussing.  I don't think opening stores to gain exposure that will
then lead to profitability is a valid reason.  If there are fixed
costs or one time costs that are setup related, that would be a good
reason to show losses at first.  That should be investigavted. You
shouldn't have to keep building a bunch of McDonalds and run stores at
a loss for a while until you somehow magically build namebrand
recognition and turn stores profitable.  It doesn't work that way.
Either the consumer likes SBUX or they don't.

It is possible, and I think likely, that the international company
owned stores will be profitable in the future.  Obviously this is an
opinion.

I would think that as international locations become more established/
mature they will be profitable on their own.

As for licensees, etc.  There must be a reason that licensees stay in
business.  What is that reason? I am not sure.  Any ideas?

Brian,

Could you explain: "As someone else noted, the company owned stores
help build the brand. Without the company owned stores, and the brand
they help build, the licensing revenues, and associated operating
income, would not exist. "

Also,

"It is possible, and I think likely, that the international company
owned stores will be profitable in the future.  Obviously this is an
opinion.

I would think that as international locations become more established/
mature they will be profitable on their own. "

I think part of the problem is that they haven not filled out their
storebase - they need to work on density in these markets, and may
have spread themselves too thin. Actually, I think this is the biggest
reason (I could be wrong).

Arizona,

"If the company owned stores are not making money, why would you
believe the franchsed stores are?  "

I haven't made that assumption, though I have assumed that the stores
are profitable for starbucks, not the licensees. Thats a very
interesting point you bring up. It certainly makes sense. I think some
of the reason is that the losses may be accounting losses, as you have
to include depreciation on company stores but not licensed stores, but
that would (should) erode the asset base over time.

"You shouldn't have to keep building a bunch of McDonalds and run
stores at
a loss for a while until you somehow magically build namebrand
recognition and turn stores profitable.  It doesn't work that way.
Either the consumer likes SBUX or they don't."

I'm not certain about this, but I'm also not certain you're wrong. A
lot of businesses suffer losses during startup, until profit rises.

The company owned stores are all located in high profile locations
(such as airports and subways) which is why margins are squeezed.
These stores do build the brand and the experience with customers as
these customers are more likely to go to another (licensed) Starbucks
elsewhere in that country.

-VV

Oh, ok. That makes more sense than, and it also makes sense why the
company is not working on building a larger density of stores. I'm not
sure why they haven't worked on density world-wide, though.