The Buying Opportunity Of A Lifetime

Key Takeaways:

• A leaked video has made Starbucks CEO Howard Schultz the bad guy in some people’s eyes.  
• True or not, this is not how long-term investors should see it. 
• Buy and hold Starbucks stock on current and any continued weakness. 

Since retaking the CEO post at Starbucks (SBUX) earlier this month, Howard Schultz has upset some people. 

Longish story short, at the same time as suspending share buybacks to reinvest in Starbucks’ workforce, Schultz subsequently referred to unionization efforts as “some outside force” looking to “disrupt” the company’s culture and operations. 

Schultz appears to be playing both sides of the equation. Simple as that. 

On one hand, the share buyback suspension. On the other, this leaked video where he and fellow executives clearly encourage managers to discourage unionization efforts. This only furthers Schultz’s reputation as anti-union. 

What It Means For Long-Term Investors 

The day Schultz took over – April 4th – The Juice made the bull case for Starbucks, in part because of strong customer loyalty:

Active Starbucks’ Rewards members were up 21% between 2020 and 2021 to 26.4 million. The company added 1.6 million new active members in Q1/2022 alone, with 53% of all rewards members driving sales in the U.S. 

In China, where the company now has more than 5,500 stores, rewards members total 18 million. But here’s the kicker – that’s a 2.6 million annual increase (impressive even without a pandemic). And those loyal Chinese customers account for 75% of sales in the country. 

Starbucks’ Reward members visit the company’s stores three times more than nonmembers. 

Since that call, SBUX is down roughly 11.5%. The stock’s off 33% over the last year. Trading around $78 a share, Starbucks reached a 52-week high of $126.32 in July of last year. So there’s lots of ground to potentially retrace. 

Unless you’re an experienced trader who understands how to navigate volatility, stay away. 

However, if you’re a long-term investor, this is a classic case of buy when others are fearful. 

Something else that happened since April 4th, my Starbucks’ Rewards balance has ballooned from 418 to 906. 

Granted, this is merely my experience. However, you know I’m not alone. 

It would take a lot of union busting rhetoric for loyal Starbucks’ customers to jump ship. Given the grief Starbucks already takes for crushing local coffeehouses – much of it unwarranted – they would have been gone by now as a social statement. 

Instead, Schultz is actually taking a moderate tone. 

Given what they do for a living, the pro-union group who got a hold of the video wants to make it sound like Schultz is the worst person in the world. 

To shareholders – and prospective investors looking to scoop up a bargain for their retirement portfolios – it doesn’t quite come off that way. They might see it as Schultz extolling Starbucks’ company culture, arguing that formal union arrangements could get in the way of it and Starbucks doing the right thing by employees. 

Take whichever side you want on social media, however Schultz’s tact will ultimately resonate harder with investors than the union group’s position. 

Because, in addition to the aforementioned loyalty, domestic and especially international growth continues to drive Starbucks over the long haul. 

These stories remain intact. 

The Bottom Line: Starbucks’ international revenue increased 12% in fiscal Q1, thanks largely to 774 net new store openings, including 197 in China. Chinese new store openings drove 70% of the company’s growth there. 

The union talk. In the grand scheme of things, it’s noise. It’ll come and go. Before you know it, the dust will settle, the hysteria will ease and we’ll look back on it all as a moment in time. 

Continued customer loyalty across the globe and the pretty incredible story developing in China. It’s these things we’ll still be talking about 1, 2, 5, 10  years down the line. Just like we are Starbucks’ digital strategy (see The Juice story from earlier this month). 

Not to mention Starbucks’ dividend, which the company has not suspended and continues to grow at a nearly 16% clip over the last five years.

Let everybody freak out next time a union-related story about Starbucks makes headlines. As they freak, you might want to buy a few shares on the dip.

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