Can activist investor Elliott turn the tide for Starbucks amidst struggling sales?

Starbucks (Nasdaq: SBUX) is experiencing a significant stock slide on Monday, erasing gains from the recent news that activist investor Elliott Investment Management has taken a stake in the company.

This development comes at a critical time as Starbucks faces declining sales and questions about its management.

Starbucks faces declining sales and stock value

Over the past year, Starbucks stock has plummeted 23%. In April, it hit new 52-week lows following disappointing second-quarter earnings.

The company reported a drop in same-store sales and earnings per share (EPS) that fell short of expectations.

This marked the first decline in same-store sales in three years, leading to a lowered annual guidance.

Elliott Investment Management steps in

The poor response to Q2 results can be traced to concerns about Starbucks’ management.

Despite strong finances, including an annual dividend growth rate of 16.3% over the last decade and 15-year annual returns of 17.31%, the company’s recent performance has raised eyebrows.

These management issues have made Starbucks a target for activist investors like Elliott Investment Management.

Activist investors typically seek out companies with strong fundamentals but poor management.

They believe such companies could perform significantly better with new leadership. Elliott Investment Management saw this potential in Starbucks and moved in.

Watch here: https://www.youtube.com/embed/xSeAENy0QHE?feature=oembed

Former CEO Schultz criticizes management

Following the Q2 earnings report, former CEO Howard Schultz publicly criticized the company’s management and called for an overhaul of its U.S. operations.

Schultz, who stepped down from the board last year, has been a three-time CEO of Starbucks and left shortly after current CEO Laxman Narasimhan took charge.

Narasimhan has faced significant challenges, including thwarting unionization efforts that began in 2021.

He has also tried to boost revenues through a focus on cold beverages, but these efforts have yet to produce the desired results.

Potential impact of Elliott’s involvement

For shareholders, the involvement of Elliott Investment Management could be seen as a positive development. The activist investor has reportedly already held talks with Starbucks management, suggesting a potential for peaceful resolution and cooperation.

However, if these discussions do not yield results, Elliott may resort to more aggressive tactics, potentially leading to a shake-up in the company’s leadership.

This wouldn’t be Elliott’s first experience with such maneuvers. Earlier this year, the firm took a 13% stake in Etsy, becoming its largest shareholder and securing a seat on the board.

Looking ahead: Starbucks’ upcoming earnings report

The timing of Elliott’s stake in Starbucks is noteworthy as the company is set to report its third-quarter earnings after the market closes on July 30, 2024. Investors will be keenly watching to see if there are any significant changes in strategy or performance, particularly in light of the activist investor’s recent involvement.

The upcoming earnings report will be a crucial indicator of whether Starbucks can reverse its fortunes and regain investor confidence. With the potential for management changes and strategic shifts driven by Elliott Investment Management, the next few months could be pivotal for the coffee giant.

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